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Mortgages Create Wage Slavery

4/4/2015

7 Comments

 
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When it comes to buying a property to live in there are too camps:
  • Camp No: Believe that buying a property to live in is a big waste of cash, it’s far better to rent and
  • Camp Yes: Believe buying a home is the best investment you can ever make

Most people in Britain fall under Camp Yes and you will find a lot more people (not a majority) in America under Camp No – the reason is the structure of Government taxes.



In the US, when you buy a property in many States you continue paying quite a chunky annual tax. In Britain, you pay Government taxes when you buy the property and no property ownership taxes after that. This means that if you pay your mortgage off before retirement you can enjoy a much lower cost of living compared to someone who is renting and in the process avoid old age poverty.

In fact, even while you hold a mortgage, with rents rising like crazy, mortgage payments are now frequently cheaper than rent.

However, I have learnt that many people lumber themselves with a mortgage so huge that it becomes a lifelong burden. Most people buy the most expensive property they can afford to buy and frequently need two salaries coming in to keep up with mortgage payments. This is a form of wage slavery.

According to Wikipedia, wage slavery refers to a situation where a worker's livelihood depends on wages, especially when the dependence is total and immediate. It is a pejorative term used to draw an analogy between slavery and wage labor by focusing on similarities between owning and renting a person.

The fact is when you’re in a situation like this you will take ill treatment and all sorts from your job because you desperately need it and losing the job would cause you a lot of stress and trouble.

When you’re in such a situation there are many adverse consequences:
  • It’s hard to save because you don’t have much left over after mortgage payments 
  • If you can’t save you can’t accumulate enough capital to start a business
  • Ultimately the mortgage stands between you and living a more flexible, less stressful life

Why do people get such huge mortgages?

Usually it’s because they have their mind set on living in a certain, expensive location and they are unwilling to compromise; or perhaps they want a bigger house than suits their budget. A good amount of the time it’s because they want to look good to their peers and can’t take the “shame” of living somewhere that’s not “posh”.

What should you do?

I’ve said it before and I’ll say it again.
  1. Stop caring what others think!
  2. Compromise on where you are willing to live

Decide how much you are ideally willing to spend on keeping a roof over your head and look at buying a home in areas where that will work. As I mention in my blueprint, 3 Steps To Quit Your Job, buying a home was part of my strategy in leaving the 9-to-5 and starting my own business.

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One thing I don’t mention in the blueprint is that part of the strategy involved buying a home with a mortgage low enough to be easily affordable on one salary. In 2010 when we bought our home, we knew I was going to quit in two years’ time. This meant there could be months when cash was tight so we had to account for that.

I have a property buying strategy that has worked superbly on two occasions: basically, you don’t buy in the really great area where you want to live, but as close to it as possible. As properties rise in value your area gets a massive benefit. Why? Because everyone that can’t afford the really nice area moves to your area instead leading to higher property prices. This strategy works in London where demand for property outstrips supply but may not apply if the converse is the case.

I will admit that we had to stretch our budget by 30% because The Good Husband wasn’t happy with everything we were seeing at “my” ideal budget but in the end we found a great property that we were both thrilled with.

Mortgages & Relationships

If your partner is the one who wants to live in a pricey area and you know this will leave you chained to a desk job, show them this blog post. Hopefully you can re-work your strategy in a way that suits you both.

How about Camp No?

Sometimes you just have to rent because you have to live in certain places to progress in your chosen career. Many Camp No people can’t even dream of buying where they have to live because they simply wouldn’t be able to get the deposit together. If this is you consider buying a property in a cheaper location and renting it out so that you have the security of ownership then rent a pad where you need to live for your career (or whatever reason).

I saw a good example of this on the TV show Real Housewives of Atlanta; a few people on the show rent because they need to live in the “it” place but they can’t afford to buy there. I think I have even seen a couple of shows where one or more of the contestants is being threatened with eviction for non-payment of rent. Eeek.

Side note: Phaedra is my favourite – I think she is both the prettiest and the smartest. Nene is my second favourite and I think the rest of them are pretty forgettable, I don’t even know their names. I don’t watch dedicatedly but I do enjoy it when I find it on TV.

Finally, for those that simply don’t believe in buying property at all, please leave a comment. I don’t personally know anyone and I would love to have a discussion with someone who has this viewpoint so I can see what their retirement strategy is.

Whatever your point of view, share it.

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7 Comments
MissFrowz
1/4/2015 01:46:28 pm

Hi Heather,

I am against buying property because it would result in higher costs of living. I live in Canada where we also pay property taxes annually regardless of whether or not the mortgage is paid off. And even though mortgage rates are so low it's basically free cash, I don't plan on buying property any time soon. Here are my reasons:

1. Housing prices are ridiculously inflated where I live. For us, the average house is 8 times our annual income. Definite no no for us.

2. We have to pay annual property taxes.

3. Renting right now means we are able to save 70% of our incomes. Meaning we'll have more than enough to retire on in 15 years.

4. Mobility. My spouse and I don't want to be tied down to one place because of a home. I know you can always sell, but depending on the market, you could sell at a loss or it could take months before you are able to find a buyer, thereby hindering you ability to move when you want.

Our investment strategy is to save 70% of our income and invest it into a balanced portfolio of index funds and ETFs averaging 7% ROI.

We may buy in the future when we retire, but we also plan to travel a lot during retirement so buying may not be an option then.

If I lived in the UK I may have considered buying since you guys don't pay annual property taxes. But my main goal is to have liquid equity rather than have all my equity tied up in one asset.

Thanks for the post! Very informative as always. I like how you explored both camps objectively.

Reply
Heather Katsonga-Woodward
3/4/2015 01:32:50 pm

I think given where you live the answers you provide are very valid. At least you have given it in-depth thought.

In England paying off a mortgage if you can afford the deposit on a house is way, way cheaper than renting. For instance, we are in the process of buying a new flat: renting the flat is £625/month but the mortgage payments after the deposit are just £400 a month - very big difference and you see this in many places here.

But I see your reasoning also makes sense. If anything perhaps you might buy a small place that can be a base to return to as you travel the world.

Much love,
H

Reply
Stephanie
1/4/2015 07:13:13 pm

Hi Heather, thank you for this post, i have been trying to explain this concept to people for ages and they just dont understand think I am a little 'nutty' especai

Reply
Heather K-W
3/4/2015 01:36:16 pm

Views on property are SOOOO wildly different and as with everything, everyone thinks they are right. For now, I am winning and provided my growing property portfolio always has tenants and I keep money aside for maintenance and insurance I will stay ahead but if you lose track things can go waaay out of hand.

Where in the world do you live?

H xx

Reply
Stephanie
1/4/2015 07:15:43 pm

especially when tell them about the second option you suggested. Because of this i have stopped trying to explain my way to people. Thanks again for an informative post!

Reply
Kay
3/4/2015 07:05:04 am

Nice article-as always, I've learnt a lot . I love being subscribed to your mailing list because your articles bring to the forefront issues that I had not necessarily thought about or need to consider preparing for in my future.

Interesting insights from the comment section too so far.

xx

Reply
Heather K-W
3/4/2015 01:40:54 pm

Thanks Kay! x

Reply



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