Pensions/Investment

[Iron]

It's much harder for an investment to fall in value than it is to rise, especially over the long term.

But isn't buying a house with a view to selling it on at a profit a form of speculation, not investment, according to the way you define those terms?

Jeff

[Euler]

Imagine I buy a house now for £200k and it yields £20k in rent or 10%. I manage to increase rents by 7.2% a year for ten years. At the end of the decade I now get £40k in rent or 20% of the purchase price. If I sold for £200k now I'd have to have a very good reason. If I manage the same over the next ten years I will now yeild £60k in rent, repeat ad infinitum. Once you attain a reasonable yield on an investment there is little incentive to sell unless you want to speculate on price movements.

[Iron]

Imagine I buy a house now for £200k and it yields £20k in rent or 10%. I manage to increase rents by 7.2% a year for ten years.

That's fine if the house is in an area where there's a strong demand for rented property. But in my next of the woods, you'd be lucky to find tenants continuously for that length of time, and if you increased the rent by 7%, they'd up and leave...

But that aside, if you were to buy a house now, there's a risk that you will end up with a property that's worth tens of thousands of pounds less than you paid for it. House price inflation has risen well above general inflation for years, and the market may be due for a major correction...

Jeff

[Euler]

The skill in investing is in buying at the right price, not so much to do with timing. Can you see though how the probability of loss decreases with each year the investment is owned?

[Iron]

I can see your logic.

But I still feel that the UK housing bubble is going to burst - that we may be Ireland waiting to happen - so personally I'd steer well clear.

Jeff

The skill in investing is in buying at the right price, not so much to do with timing. Can you see though how the probability of loss decreases with each year the investment is owned?

[pt9091]

Jeff,

You would just argue the toss with anyone, on any subject regardless of what it was anyway. Jeff knows best folks!

[Euler]

Everybody is entitled to an opinion.

I don't think houses are cheap compared to other assets, was just laying out the case that why just because they are overvalued they wont necessarily crash. I did write an article about this some time ago. I'll see if I can dig it out.

[Iron]

Jeff definitely doesn't always know best, but Jeff thinks critically and isn't afraid to voice his opinion. It isn't always the best way to win friends, but conversations where everyone agrees with each other are boring!

And being contrarian isn't necessarily a bad thing if you're a trader!

But I am willing to consider other people's opinions. In the words of Tony Blair, "I don't have a monopoly on wisdom!".

Jeff

Jeff,

You would just argue the toss with anyone, on any subject regardless of what it was anyway. Jeff knows best folks!

[Iron]

I agree that it's not inevitable that the housing market will crash. But I do think it's a distinct possibility, and I don't see how anyone can say that it's highly unlikely to fall by x%.

Jeff

I don't think houses are cheap compared to other assets, was just laying out the case that why just because they are overvalued they wont necessarily crash.

[superfrank]

Jeff definitely doesn't always know best, but Jeff thinks critically and isn't afraid to voice his opinion.

Don't worry about it Jeff- it's positive group think bolux that got us into this mess in the first place. It's healthy to be a contrary.

[Iron]

Thanks Frank!

I agree with you about group think - it's a dangerous thing. And as the Milgram experiment (http://en.wikipedia.org/wiki/Milgram_experiment) demonstrated, ordinary, decent people who unquestioningly obey authority can end up doing horrible things (which may partly explain how Nazi Germany came about).

Jeff

Don't worry about it Jeff- it's positive group think bolux that got us into this mess in the first place. It's healthy to be a contrary.

[superfrank]

I think the housing market has just gone past "return to normal"... at least in real terms.

Psychology of a major bubble


I'm hoping silver is in the bear trap!

[PeterLe]

Guys
Fascinating replies! I'm sure I'm more confused now from the initial post!
One of the things I have thought about is investing in overseas property which would yield a return of some sort and provide a place where the rest of the family could use too? There are some real "bargains" in places like Spain and Florida for instance...although I expect some may disagree!

regards
Peter
(PS - As an aside; Its interesting how views differ so widely on something relatively 'simplistic' such as the housing market, you can begin to imagine how individuals views vary on the exchange then. Also interesting to see attitudes to risk too and I wonder if that is mirrored in individual trading??

[Euler]

I had a look a property in Florida when I was over there and it's dirt cheap compared to a few years ago.

I met up with some local experts who have large portfolios and they have been buying up distressed foreclosed properties refitting them and getting massive yields from them. They showed be around a few and hinted that the best properties to rent were 3/4 bed villas where there is always consistent demand. There are whole swathes of estates out there just built for rental that are pretty much empty. Property in the US has really plummeted in a similar fashion to Ireland. Las Vegas has been very hard hit.

[freddy]

I can see your logic.

But I still feel that the UK housing bubble is going to burst - that we may be Ireland waiting to happen - so personally I'd steer well clear.

Jeff

[/quote]

That’s fair enough a lot of people think that Jeff
But It shouldn't necessarily put you off the investment,
all that matters at the end of the day is the numbers, if they make sense, they make sense.

Car Rental companies make money even though their assets are depreciating from the moment they leave the car showroom, simply because their numbers add up.

Using Eulers example, who has put it far better than I ever could , you can see that the longer you hold the investment the less important the value of the property becomes. It's just a bonus if your property has increased in value, but historically a very very likely one .