01162822177 enquiries@rowleyturton.com

Could buying a home be the worst financial decision you’ll ever make?

11th September 2017

house, home, property, investment, savings, time, inflation, decision, financial, advice, rent, portfolio, tax, returns, buy to let

 

When it comes to the decision between buying and renting your home, owning a house usually comes out on top as the best investment in the long-term. From a financial perspective, renting is typically considered to be wasteful: you’re simply paying every month with no return on the money. Buying a house, on the other hand, gives you a valuable asset which may lead to financial gain in the years to come.

However, Chris Reining, an American self-made millionaire who retired at 37, has recently described purchasing a house in his mid-twenties as ‘probably the worst financial decision’ he has made in his life. Reining bought a $200,000 house in Madison, Wisconsin, paying a deposit of $40,000, but now says that, thanks to not making the right financial decision, he’ll ‘realise two losses’ from the purchase. The first, he says, will come from selling the property for less than what he paid for it. The second is ‘the opportunity cost’ – choosing to use his money in one way rather than another, in this case using $40,000 for a deposit rather than investing it elsewhere.

To explain his reasoning, Reining looked at the inflation-adjusted return on both a house and the stock market for the period from 1890 to 2012. The return on a house in America was just 0.17%, meaning that a house bought for $5,000 in 1890 would only be worth $6,150 in 2012. Alternatively, the stock market return in the same 113-year period was 6.27%. As such, an investment of $5,000 on the stock market in 1890 would now be worth $8 million.

Reining concedes that buying property to rent is a different matter, as you can, within reason, set your rent at a price which allows you to make a profit on your investment. But he feels if you’re buying a house primarily to get a return on your money, rather than as a home for you and your family to live and grow up in, you could be better off looking at investing elsewhere. Your family home is likely to be one of the least profitable investments you’ll ever make, so he recommends not thinking of it in those terms.

Contact us to discuss the pros and cons of property vs traditional investments.

Subscribe to receive your FREE regular newsletter

Award, Investment, Life, Pension, Moneyfacts, 2015, Estate, Tax, Planner, of the Year, Best, Adviser  New Model Adviser, Top 100, 2015, Award, Best, IFA,    Independent Financial Adviser, IFA, Independent, Financial, Adviser, Advisor 

Retirement Planner, award, firm of the year, midlands, 2017, pensions, adviceVouchedfor, Rating, Best, IFAChartered Financial Planners, Chartered Financial Planner, Chartered, Financial, Planner

Rowley Turton (IFA) Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register No: 457946 http://www.fca.org.uk/register.

Rowley Turton (IFA) Ltd Registered Address: Charnwood House, Harcourt Way, Meridian Business Park, Leicester, LE19 1WP. Registered in England & Wales, No. 3145431.

Neither Rowley Turton (IFA) Ltd nor its representatives can be held responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The Financial Conduct Authority does not regulate National Savings or some forms of mortgage, tax planning, taxation and trust advice, offshore investments or school fees planning.

The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at http://www.financial-ombudsman.org.uk.

The information contained within this site is subject to the UK regulatory regime and is therefore targeted primarily at consumers based in the UK.

Please read our Privacy Statement before completing any enquiry form or before sending an email to us.