When it comes to buying a property to live in there are too camps:
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:
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.
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.
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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Heather on Wealth
I enjoy helping people think through their personal finances and blog about that here. Join my personal finance community at The Money Spot™.