yet Bitcoin investors would have made £5,952,080 in profit.
Is investing in ‘Bricks & Mortar’ dead?
Investing in property has historically been a sound
investment, yet alternative investments (like Cryptocurrency) have been gaining
traction over the last five years. So, should we all ditch buying our own home
and buy Bitcoin?
Cryptocurrency with such names as Bitcoin and Ethereum are
being bandied about as the new investment vehicle everyone should be investing
in. But is Crypto a sound investment or just an ‘end of the seaside pier one
arm bandit’ speculation?
Well to start, I need to discuss the difference between
investing and speculation.
I have always seen investing as making a thorough detailed evaluation
(and you are realistically sure your principal lump sum is relatively safe), you
then have an opportunity to make a profit. Whilst speculating is all about
putting your money into an asset that has ambiguous protection of your principal
lump sum … and you have an opportunity to make a large profit but also the
potential to make a huge loss.
In a nutshell, investment should be as interesting as
watching paint dry and speculating should be as exciting as putting all your
money on red on the roulette wheel.
So, let’s see what has happened to both Cryptocurrency and Neath property in the last five years.
The average Neath home five years ago was worth £119,520, today it’s worth £146,760.
We now ask, what would have been the return if you had invested the same amount in Bitcoin?
If you had invested £119,520 into Bitcoin in 2016, it would be worth £6,071,600 today.
What about the return if you had invested the same amount in Ethereum?
If you had invested £119,520 into Ethereum in 2016, it would be worth £19,736,300 today.
Yet only In June, when China placed stringent controls on how its population can use Cryptocurrency, Bitcoin dropped in value by 30% in one day. Also, this year, we saw another fall in Bitcoin when Elon Musk tweeted that Tesla were banning the acceptance of Bitcoins to buy its cars.
Can you imagine the value of your Neath home dropping in value by £44,762 in just one day because of one tweet?
So, if Cryptocurrency is speculation and extremely high risk,
surely buying your Neath home is an excellent investment?
It is my opinion that purchasing a home to live in is a massive
financial choice that can give you peace of mind and a lovely place to live,
yet it is not an investment. I know this is going to sound strange coming from
someone in the Neath property industry, but whilst I know it’s common for
people to think of their Neath home as an investment, I believe nothing could
be further from the truth.
I am not suggesting every 20 and 30 something should avoid
homeownership, but if you are edging towards buying a Neath home because you
think you are making a savvy investing choice, think again.
The concept that the home you live in can be an investment
comes from the statistic that, historically, property values increase. We
all know someone, our Mum and Dad or Grandparents for example, who purchased
their Neath home in the 1950’s or 1970’s for the price of an Xbox and it’s now
worth more than you make in ten years in salary.
Yet, I believe, it’s not an investment only because it goes up in value.
Between 1989 and today, Neath property values, after removing inflation, have gone up by 50.37% … sounds great until you realise that is only 1.57% growth per annum (after inflation).
Sounds rubbish, doesn’t it?
But guess what? Does it really matter?
Even though your Neath home’s value has outperformed
inflation, there are other reasons your Neath home is not an investment.
A real investment needs more than the outlook
of an increase in value.
A home has a more important primary purpose.
Possibly the specific biggest reason why your Neath home is
not an investment is because its prime purpose is providing a roof over the
heads of you and your family. One of the most rudimentary issues that makes an
investment an investment is your capability to decide the timing of your possession
of the investment.
A true investment requires you to buy it and sell it at
times (and under situations) that are probable to exploit your investment
return, yet since your Neath home is your family’s shelter, you will have hardly
any power over the sale and purchase of your Neath home from an investment
perspective.
The absence of ‘real’ control over the timing of buying and
selling our Neath homes (and note I use the word home and not house) has
had a significant harmful effect on property as an investment.
In all my years in the property profession, I have seen numerous
Neath people buy houses at the top of the market (1988 and 2008) because that
was the time that they required a home for their family, but those same people became
stuck when having to sell their homes a few years later because of personal
circumstances, albeit for a loss.
Then I have seen other Neath people buy at the bottom of the market (1993 and 2011) because that was the time that they also required a home for their family, and those same people had to sell their homes a few years later due to personal circumstances, albeit for a huge profit. Are the second set of people more savvy investors? No, it was just good or bad timing, and that is not uncommon when it comes to buying homes, and so has to, in my opinion, exclude a home as an investment.
A Neath home cannot be an investment if you never plan to sell it … and not buy another home.
While it is fact that Neath homes usually increase in value,
there is only a partial opportunity to tap into that growth. The best way to
sell your Neath home is after it has experienced a massive amount of value
increase, sell at the top of the market, move into rented accommodation, then
buy at the bottom of the market. Nevertheless, how do you know when it is the top
and bottom of the property market (and moving home is considered the third most
stressful thing you can do after death and divorce).
That doesn’t sound like an investment to me, does it to you?
Ok, most people sell and buy another home, so when you do
sell your Neath home, you will have to use the profit you have made from the
sale of your original Neath home to purchase the next home as you will be
moving from one home to another. This means your profit (equity) is trapped profit.
The only time that doesn’t happen is when you either trade down to a less expensive home, or move into rented accommodation, yet both scenarios are quite rare occurrences.
Using your Neath home as a bank account?
In the early 2000’s, many banks and building societies were
encouraging homeowners to re-mortgage their homes as property values rose by
15%+ a year. By extending the term of the mortgage, you could easily borrow
£20k, £30k+ for fancy holidays and new cars and the monthly mortgage payments
would be lower – that was like free cash!
Known as equity-stripping, a lot of Neath homeowners found out the hard way during the Credit Crunch that they had in fact bought themselves negative equity when property values crashed. That left them powerless to re-mortgage to lower the monthly payments when the interest rates dropped in 2009, yet unable to sell to move to a less expensive property because of the negative equity. Finally, to add insult to injury, as the mortgage term had constantly been pushed into the future, they had the prospect of having to pay their mortgages until their late 60’s/early 70’s.
Bitcoin doesn’t need a boiler replacing every ten
years.
Every homeowner knows it costs money to maintain their home.
Replacement windows, soffits, roof, carpets, kitchens, bathrooms, boilers, flat
roofs – the list goes on. Over the 25 years of a mortgage, that can add up to
many tens of thousands of pounds, yet one can justify those costs since your home
is providing you shelter. But that gets back to the original principle – a home
is a shelter, and not really an investment.
But isn’t renting out a property an investment?
The solid fact is that your Neath home, the home that you
live in, basically won’t provide any form of cashflow when you are a homeowner,
unless you move out and rent the whole house to someone else. That is called a
buy-to-let investment – of course that is an investment and I know many Neath
buy-to-let landlords who make a decent living at renting out their rental
properties.
Yet, that wasn’t the point of the question I asked
originally – “is buying a home, for you and your family to live in, a good
investment?”
Of course, you could take in a lodger or rent rooms out as
an Airbnb, and this will help you pay your mortgage, Council Tax and other
costs associated with homeownership, so it can be worth it for many. However,
an “Englishman’s home is his castle” is quite apt and most of us aren’t good
with sharing it with strangers.
What do we buy homes for then?
To conclude, I believe the principal reason why so many Neath
people consider their home (not house) to be an investment is because we are all
obsessed about how much our home is worth.
We are all guilty of checking out Rightmove when a property
on our street comes up for sale. Yes, we are nosey by looking at the pictures, yet
the most important thing is what price they’re asking and how it compares to
our home. Our home is our biggest tax-free asset and especially when it goes up
in value, which it certainly has done for the last nine or ten years, it
certainly can feel like an investment then.
However, during the five property crashes that we’ve had
since World War II, not only did property values not increase, but they fell.
Some dropped dramatically. For homeowners in that position, not only was their home
not an investment, but it had become a huge liability.
Thank you for taking the time and trouble in reading this
article. I must stress that I’m talking about our own homes as an investment
and not buy-to-let investment which is a completely different animal and
certainly is an investment, if done correctly.
One final thought – for those of you buying and selling
Cryptocurrency – enjoy your roller coaster. For me, the thing about property is
this; you can touch it, you can feel it, there is something reassuring about a 9-inch
red brick and tiled roof. It’s home, it’s where you bring up your family, it’s
where memories are made and the best investment you can make in life is with
them, your family … and for that – it is a priceless and enduring investment.
These are my thoughts, please tell me what yours are.
