{ in·deed·a·bly }

adverb: to competently express interest, surprise, disbelief, or contempt

Confluence

A rainy Tuesday evening commute. I found myself sardined into an overcrowded tube carriage.

To my left, a miserable looking giant stooped under the low curving roof. His umbrella steadily dripping down the trouser leg of the old man sandwiched in front of him.

To my right, a tiny woman with a huge handbag furiously tapped away with both hands on her smartphone. Too short to reach the handrail, she leaned and jostled against her neighbouring passengers like a teenager in a mosh pit.

It was hot and humid. The air reeked of sweat, wet wool, and quiet desperation.

Seated along one carriage wall were three young children. Ginger-haired twin boys aged about six, and a younger toddler. All the kids were pale. One looked decidedly green.

The train was driven by a frustrated boy racer. Alternating rapid acceleration with sudden braking. Each change in momentum causing the passengers, and the boy’s stomach, to lurch alarmingly.

Those close to the boy initially gave him looks of sympathy and concern. Then, as they attempted to back away only to discover there was nowhere to go, the looks swiftly evolved into consternation and fear.

Suddenly the train screeched to a dead stop. Momentum causing unwary passengers to careen into their neighbours. Nobody fell. There simply wasn’t the room.

The ill boy’s stomach could take no more. Vomit fountained from his mouth, momentum turning his head like a laughing clown carnival game. A half dozen people standing directly in front of him were liberally coated from waist to knee with whatever he had eaten for lunch.

That first technicolour yawn set off a chain reaction amongst his siblings.

The other twin surged forwards. Shoes, bags, umbrellas and briefcases covered in a spectacular display of pavement art that wouldn’t have been out of place on display in the Tate Modern.

The toddler’s diminutive size proved deceptive. He showered the businessman seated next to him. It was a torrent we thought would never end. That kid must have been hollow inside to physically hold such vast quantities of vile liquid, that smelled suspiciously like Red Bull mixed with Haribo.

A disembodied voice mumbled through the carriage speakers: “This train is running ahead of schedule. The line controller is holding us here for a few minutes to even out the gaps in the service. We should be underway shortly.

The toddler cried.

The green looking twin cried.

The businessman looked like he wanted to cry too.

Rummaging in her capacious handbag, the short woman kindly started handing out wet wipes to those standing nearest to her. “Just think about where you would rather be right now”.

A mental image of the French Riviera popped into my head. The penthouse apartment I had rented a couple of years ago. Sitting out on the balcony watching the sunset over the ocean, on a warm summer evening. Eating fresh bread and cheese.

Relaxed.

Content.

Happy.

Ten minutes later I fought my way out of the malodorous carriage and onto the station platform. It was still pouring, but at least the rain should wash the puke off my shoes during the long walk home.

Winning the lottery

As I opened the front door, my elder son ambushed me.

I read that somebody won £170 million in the lottery! Was it us? Did we win? Are we rich now?!?

Pointing to my sodden vomit stained suit trousers and shoes, I asked him what he thought?

The excitement in his eyes dimmed. Hopeful expression fell. Shoulders slumped.

I asked him what he would do if we had won? What would he change about his life today?

I wouldn’t tell anyone. They would treat me differently, be jealous, or ask to borrow money.

I’d still have to go to school. Maybe I would study business studies to learn how to manage it all.

I would use most of the money to solve the problems Greta Thunberg and the Extinction Rebellion spoke about.

His response surprised me. No mention of Ferraris, private jets, or hiring a maid to clean his room.

Not how I would have answered the question at the same age. If I’m honest, not how I would answer the question now!

I asked whether he would want to attend a better school? Live in a nicer house? Have more stuff?

My son thought about it for a minute.

No. I already go to a good school and I like my friends. I definitely wouldn’t want to live any further away from either.”

I raised an eyebrow. Did he realise he was essentially saying that even with access to millions of pounds, he wouldn’t change anything major about his current life? That sounded like winning to me.

He thought about it some more, conceding that was the case. The alluring siren song of video games drew him back inside, but he paused as went through the door.

There is one thing I would change: buy this house from the landlord. Then we could get the dodgy wiring fixed, and Mum could finally get those fancy wardrobes she has been wanting for years.

Everything has a price

There will be a price at which most, but not all, properties can become viable investments. The majority of properties will rarely sell at or below that price due to market forces and greater fools.

Very occasionally a property will become available at a suitably attractive price, typically being sold in a hurry by a distressed seller. Bankruptcy. Deceased estates. Disablement. Divorce. Illness. Immigration status. Long term care.

Other people’s tragedy providing opportunities for investors who are prepared and to ready to act.

Long ago I had done the thinking to identify several locations offering good long term investment opportunities, subject to a suitable property becoming available at the right price.

I defined the relevant search screens to watch for them, and set alerts to fire should a property matching my criteria come onto the market. Then I waited.

That evening one of those property alerts landed in my inbox. This doesn’t happen often, maybe three or four times a year at best.

Dishearteningly often, the alert will be a false alarm. A sausage fingered estate agent making a typo when listing the property. Or an owner wanting to sell a property that doesn’t fit the standard listing parameters, such as a houseboat or parking space.

Today’s alert notified me that a house a few doors down from where I currently live had been put on the market. After an epic half-century battle of wills, it appeared the stairs had finally defeated the little old lady who lived there alone.

London property prices have pulled back from their inflated highs. Brexit uncertainty and xenophobic “foreigners go home” rhetoric combining to repel cashed-up buyers in a global market. The high-end estate agent Savills guesstimates that prices have fallen 14% from their lofty heights. LonRes reported a 19% fall in sales since the referendum.

It appeared that in my neighbourhood the fall in asking prices was nearing my threshold where “ridiculously overpriced” morphs into “attractive opportunity”.

Confluence

I wasn’t in the market to buy a property. Particularly of the owner-occupier variety. Especially in London. Yet experience has long taught me to keep an open mind and make well-informed decisions.

The next morning I got in touch with my mortgage broker. He specialises in obtaining finance for those who tick the “it’s complicated” box on standard mortgage applications. Business owners. Freelancers. Semi-retirees.

We spoke briefly about the house down the street, and my current winter working hibernation. I headed for the dry cleaners to drop off my puke stained suit, while he promised to run some numbers.

Half an hour later I emerged from the tube station near my client’s site. The contrast to the previous evening’s commute was marked. No crowds. No delays. No puking children. I even got a seat!

An email from the broker was waiting in my inbox. He’d found several lenders who would offer a mortgage with interest rates as low as 1.19% per annum.

I performed some quick mental arithmetic, then did a double-take. Subtract the inflation rate, and the real interest rate was -0.51%.

One of the interest only products he suggested had monthly repayments roughly one third the amount I currently pay in rent. A third!

That blew my mind.

I stopped in the middle of the footpath and skimmed through the email again to make sure I had read it correctly. Disgruntled suits tutted in exasperation as they jostled past me.

Granted the house for sale was the 100-year-old original “before” to my rental’s modernised and fully extended “after”, but the location, aspect, and block size were essentially the same.

Where do you see yourself in 10 year’s time?

That evening I thought some more about my housing situation.

My elder son had said he was quite content where we were, and didn’t want to move.

My younger son’s school was just a short walk away. He tells me he is going to marry his after-school nanny and they would live happily-ever-after together in his current bedroom.

My lady wife loves the area but loathes the fact we rent rather than own where we live.

It occurred to me that in just 5 years time my elder son will most likely have gone away to university. 6 years after that, his younger brother will have followed a similar path. Possibly without the nanny.

The need to live within viable commuting distance of the boys’ schools would be removed.

For the first time in 24 years, “Dad’s taxi” would be retired. No longer needed to ferry kids to the endless stream of birthday parties, music lessons, parks, play dates, and weekend sports.

Would I want to remain living in the neighbourhood at that point? Almost certainly not. That penthouse balcony overlooking the sea is worlds apart from the drab grey suburbs of London.

And yet, 11 years is a long time.

Longer than a typical property cycle.

Long enough to entertain the high transaction costs associated with purchasing property.

Possibly even long enough for the dust to settle and a direction of travel to emerge for post-Brexit Britain.

Could it be worth taking an educated bet?

Seizing the opportunity to acquire a “cheap” property while prices are depressed by uncertainty?

Take advantage of the virtually “free” financing on offer at once-in-a-lifetime low interest rates?

This approach would not be without risk. Some likely. Others less so.

The work pipeline for my company may dry up.

Predatory HMRC regulations may further cruel my ability to generate passive income tax effectively.

My lady wife’s long-suppressed decorating instincts may overcapitalise the property. Or bankrupt us!

Brexit could end in tears, seeing Britain descend into some form of dystopian hellscape. The pound could collapse as the world realises just how spectacularly incompetent both the government and alternative governments actually are. Interest rates could soar, the Bank of England forced to dangle an ever larger carrot to attract foreign investment. Property prices may become a casualty of the Heathrow revolving door, as those with means take their money and skills in search of opportunity elsewhere.

And yet, despite all those risks I find myself strangely tempted.

The opportunity to slash my largest lifestyle cost, without unduly disrupting our very comfortable lives. To a level that, with some minor financial acrobatics, passive investment income could reliably cover. With a sufficient loan-to-valuation safety margin to insulate further falls in market prices.

It wouldn’t be a lottery win, but it would shift the needle on the Financial-Independence-o-meter firmly into Financially Independent territory. Winter working hibernations would become an optional indulgence rather than a financial necessity.

Once released, a genie can seldom be put back in the bottle. It will be interesting to see how things play out over the next few months.

Who would have thought a confluence of unrelated events would result in my premises being challenged regarding living arrangements, and some long-held beliefs being re-evaluated as new information coming to light? Not the ending I was expecting when this journey started out with my wearing some random kid’s lunch on a peak hour train.

Decisions, decisions.


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16 Comments

  1. Phil Money Mongoose 26 October 2019

    I’m in a similar situation. I’ve just ‘thrown in the towel’ and am in the process of buying a property which fails every financial metric I impose on investments and saddles me with multi-decades of debt repayment. Why? Similar reasons: benefits for the kids and outrageously low interest rates (0.75%!!) that are immaterial compared to capital repayments and other running costs.

    I hate this feeling of buying late in the cycle, at peak prices, having resisted so far. But I fixed for 10 years which reduces some of the risk. It’s now a pure gamble on how long rates will remain low to allow the savings to erode the premium paid.

  2. Ryan Gibson 27 October 2019

    This is an exciting event and one I am keen to follow. I’ve followed your blog since the beginning and it’s interesting seeing this shift.

    My Wife is exactly the same which is way we own our property. Sometimes you have to put your ‘full’ investment head to one side and realise that a home; a family home is important.

    I hope it works out for you whatever you decide 🙂

    • {in·deed·a·bly} 27 October 2019

      Thanks for reading Ryan, I remember you being the very first person to share a link to one of my stories on Twitter.

      I’ve been thinking about that shift also.

      To recap, I been a home owner a couple of times in the past, and don’t have a problem with it philosophically. Indeed, for several years I enjoyed the free cash flow that came from not having to pay rent or mortgage payments as a result of owning my flat outright. The savings that enabled in turn facilitated the acquisition of passive investment income streams, the same ones that allow me to afford to take the summers off each year.

      My main issues have been twofold:

      1. The main attraction of the area we choose to live in is the great schools. It isn’t an area I would like to end up in long term, but for now it meets our needs.
      2. Servicing a traditional mortgage at the price points the houses in my neighbourhood were selling for 2-3 years ago would have put an end to my seasonal working pattern.

      So what has changed?

      Operation: Gordon saw my elder son get into an amazing high school, and by virtue of the siblings admission policy his younger brother will attend the same in time. That added 11 years to my timescales in the area, as failing to obtain admission to high school that provided a reasonable prospect of university admission would have required a relocation.

      Meanwhile the prices in the area have plummeted. Property developers had been throwing up apartment buildings marketed at cashed up foreign buyers, while City folks on lucrative ex-pat packages had been keeping the family home side of the market propped up. Today the ex-pats have mostly returned home as the London based elements of their firms have been hollowed out, while the bulk of the development projects have been mothballed or abandoned altogether due to lack of interest.

      Now I find myself in the curious position where a house may almost be affordable, without compromising the seasonal working pattern, at the same time that my timescales in the neighbourhood have extended to the point where such an acquisition may make sense. Still wouldn’t be the world’s greatest investment financially, but would potentially see me returned to a comparable cashflow position as when I lived in the flat I owned outright.

  3. Kp 27 October 2019

    Imagine this.. In 1980s when interest rates were approaching 16%, whole pay went to pay the mortgage, walked to save a £ on pack of nappies, living in a first time bought flat under the flight path in negative equity, other flat owners renting out, and landlord next door renting to drug suppliers!, and then loosing the job. Two young girls had no say where we can move to.
    Had some savings. Rented the flat I owned and bought from an auction a house that needed everything doing. Got a job and wife also returned to work, paid off mortgage in 7 years, i retired 5 years ago, wife last year.
    I travelled too and noticed everyone in the world wants to come to London, brexit or no brexit, property in London is a good investment, I was able to have fu money and fire at 44 due to this.
    Buying from auction was the biggest risk I have taken but luckily it paid off.
    Sometimes overthinking it is not good, in life you have to take some risks.
    Writing this from my place in Goa near a 25km long beach!
    Hope this helps you decide.
    Regards
    KP

    • {in·deed·a·bly} 27 October 2019

      Thanks KP, that sounds like quite the adventure. I’m pleased to hear it all worked out in the end.

      The auction game is certainly adventure. On the one hand it gives contract certainty. On the other it requires a good combination of luck and a keen eye for quickly telling the difference between cosmetic and structural issues. Get it right and the margins can be fantastic. Get it wrong, and potentially own a money pit!

      You’re right about the need to take risks. The tricky part (for me at least) is attempting to reconcile disparate goals: maximising the enjoyment of the now, while simultaneously lining things up to achieve desired long term outcomes both individually and for my family.

  4. GentlemansFamilyFinances 27 October 2019

    great read.
    I/We bought our house for raising a family in. I could not imagine renting a family home – not in the UK anyway. You need stability and in your position of having money but still needing to prove your worth to an estate agent when the time comes and have the threat of being made homeless just around the corner is not something I could live with.

    After STR and moving a bit, we bought a house that cost us about 3x our joint income and our mortgage was 2x that income (having money helps in life a lot).

    That was almost 4 years ago – two years of a variable tracker at BOE+1.24% and now a fixed 5 year at 1.79%. When that’s up, I’d like to think that we could MEW and get an offset mortgage – pay it off with the pensions/LISA at 60 (late 30s now)

    But as you say, 10 years is a long time…

    • {in·deed·a·bly} 27 October 2019

      Thanks GFF.

      It sounds like you would like to spend then next 20+ years and beyond living in your current home. Congratulations on finding a special corner of the world that is so much to the liking of you and your family.

      If you have the means, then obtaining a lease isn’t a big deal. Strong cashflow or a reasonable sized contingency fund overcome most initial concerns in my experience.

      When a landlord no longer wishes to rent to us for a reasonable price, we simply move somewhere nearby. It is inconvenient, but one of the benefits of living in the big city is that there are always plenty of alternative properties available. There have been times in the past where we were priced out of a gentrifying neighbourhood, but again we simply moved somewhere more reasonably priced.

      What differs this time around is that the numbers have swung the other way.

      Normally in the inner parts of London it costs less to rent than own. Often significantly so. Many landlords subsidise their tenant’s cost of living, while hoping to realise bumper capital gains. The recent price falls driven by Brexit uncertainty appear to have created a window where it is currently cheaper to own than rent. Combine that with the extreme low interest rates available, and it becomes tempting to buy.

      Of course that temptation is tempered somewhat by the prospects of paying an eye-watering stamp duty bill!

      • GentlemansFamilyFinances 27 October 2019

        location, location, location – I think that we have the best place to live where in the city we are in and comparable houses in the two nearest cities are twice and three times the cost of our respectively.

        We’d like to leave the UK but I am not sure it’ll happen. And in any case, it might begood to keep a place in the UK in any case.
        If interestrates stay low for longer then it’s effectively a free loan with the (possible) upside of HPI.

        • {in·deed·a·bly} 27 October 2019

          Where would you like to go?

          You could always rent out your home, as a passive income stream if the overseas adventures work out, and as a hedge against the chance you one day wish to return home. The luxury of choice.

          • GentlemansFamilyFinances 28 October 2019

            we live in Scotland so somewhere further South. We enjoy skiing, the mountains, the sea and good food – so somewhere like Northern Italy or Slovenia would tick the boxes but I am worried (since we’re not properly FI) about securing future income in 10-20 years time…
            It might be fine now for a change but what if… I don’t want to be forced back into work as a 50 year old to pay the bills.

            As far as renting out goes – that’s an option as you say, the luxury of choice.

  5. monevator 1 November 2019

    I’m finally remembering to get you onto my Friday rotation. 🙂

    Great intro. I was there! (Unfortunately…)

    I’ve spent very little of my adult life in busy commuter trains despite living in London for nearly all of it, but these crowd funding events keep tempting me into town early evening, at least once a week. I don’t know how people can bear it, though the imagination trick does work and I’ve used it myself.

    Not commuting must be worth, what, £5K a year to me. Possibly £10K! It’s hard to say because it would also involve going to an office job to work, presumably, and not doing that is worth another £20K at least!

    If you’re now buying, have you run the numbers on finding a shorter commute? Don’t want to get misled by the ‘availability bias.’

    p.s. Think there’s a typo where you write cruel but mean curb?

    • {in·deed·a·bly} 1 November 2019

      Thanks TI. I hope you didn’t get sprayed!

      Your availability bias observation is well made. The decision about whether to buy or rent in concept is distinct from the decision about whether to buy that specific house. My preference would be a property that had already been done up, I’m pretty sure my marriage would not survive a Grand Designs style development project!

      Cruel” is right, can be used as a verb meaning to ruin something. It may be an Australian thing.

  6. Renae 6 November 2019

    I’ve just recently made an offer on a house in Australia (shock horror prices), in a village 30mins drive from my current rental and home. The decision was made because my husband and I want to practice Permaculture, which is very limited in rentals, and especially flats, though I have been doing my best. We’re aiming to do this with multiple redundant plans in place with as little dent in our FI plans and share holdings as possible. We’re buying a quarter acre block with a house in place and will rent it out ASAP (high rental demand area). This is with 10% deposit plus stamp duty. Then we are going to DIY build a granny flat to live in out the back. Once the build is underway, we will probably stay in a camper van on site to stop paying rent. Once finished, we aim to pay it all off as quickly as possible while interest rates are rock bottom. All the while the shares are ticking over. For this change of our chosen lifestyle, I expect it will add somewhere between 1-3years to our FI date, depending on how canny we end up being, with the added bonus of the life adventure to be had along the way. This is the only way I would currently consider buying property in Australia, the prices are ridiculous!

    • {in·deed·a·bly} 6 November 2019

      Good luck with your property purchase Renae.

      The “house hacking” route can be a great way to build up equity, getting a tenant pay off your mortgage for you.

      There are a couple of important tax implications associated with the arrangement you describe. Generally speaking, in Australia the costs of operating a property as a rental are tax deductible (i.e. financing, maintenance, insurance, etc), while those associated with an owner-occupied property are not. Similarly capital gains tax applies to the portion of the property you rented out, while the part you live in would generally be capital gains tax exempt.

      I’m sure you will have done the thinking on this already, but look into formally subdividing the property onto separate titles, with separate access, separately metered utilities, and so on. This will keep your options open later, and make part/all of the property easier to sell. It would also make the book keeping a lot easier while you’re renting out one and living in the other.

What say you?

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