02 Buy

Why Choosing to be a Tenant is Seriously Dumb

  • More people making  “lifestyle choice” to be a tenant
  • Being a tenant can be cheaper and more flexible
  • But in the long term, being a tenant is like throwing money down the drain

For an average person, the difference between renting and buying can be over a lifetime several million pounds. Repeat, several million pounds.

Here are the main negatives of choosing to rent when you have the ability to buy:

1. You are turning your back on the possibility of millions of pounds

2. Your home is a debt not an investment

3. You only have limited rights to remain in your home

4. You don’t end up with a very valuable asset free of mortgage

5. You don’t have free accommodation when your mortgage is paid off

6. You don’t have a huge asset to subsidise your pension

7. You don’t have a valuable asset to make lifestyle choices

8. You don’t own a property outright, which you can gift as a legacy

1. You are turning your back on the possibility of millions of pounds

The difference between owning your home and renting all your life is likely to run into millions of pounds.

According to the UK House Price Index: November 2018,  the average price of a house in the UK is £230,776. Since the seventies at least, house prices have pretty much doubled every 10 years in most parts of the country.

If you bought an averagely priced property at say £230,000, its value after 30 years could be £1,840,000.

If you bought such a property with a 30 year repayment mortgage, the mortgage would be paid off at the end of the 30 year period and you could be left with an asset worth nearly two million pounds.

If during the same period you were a tenant, your capital gain from where you lived would be zero.

It is correct that for full accuracy, the above figures would need to be subject to some fine tuning.

For instance, you will probably during your ownership spend some money on repairs and modernisation from time to time. 

Further, future house price inflation may not be as good as in the past. If prices were to go up by just 50% every 10 years, the end value of a purchase at £230,000 would still be an impressive £776,250 after 30 years.

However, the overall picture is clear and undeniable. To buy a house is to buy an appreciating asset.

Remember that the calculations above are based on buying an averagely priced house.

If you buy a property at say £100,000 which doubles in value every 10 years, you could end up with an asset of £800,000 after 30 years.

If you buy a property at say £500,000, you could end up with an asset worth £4 million after 30 years.

What makes most sense to you? To rent for 30 years and end up with nothing for your efforts or to buy your own home? 

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2. You home is a debt not an investment

If you rent your own home, it is a debt; however, if you buy your own home it is effectively an investment – it grows in value with time.

Rent is often referred to as “dead money” – you get a roof over your head in return but little else of note.

In contrast, when you own your own home, you own a tangible asset of escalating value.

The money that as a tenant you pay to your landlord, is paid instead to a mortgage company from which you borrow the money to pay for your home.

At the end of the mortgage term, the mortgage is fully paid off, meaning you are entitled to its full value on a sale.

3. You only have limited rights to remain in your home

One of the biggest drawbacks of being a tenant is that you may only have very limited “security of tenure” or right to remain in your home.

If you are a private tenant with say a one year tenancy, you will be legally obliged to leave at the end of your tenancy – if your landlord wants you to go – even if you have been the best tenant in the world ever – with the landlord not needing to give you any reason.

You may be lucky to find a landlord who is prepared to allow you to rent for many years in a row.

However, if you are not so lucky and have to move on a regular basis, the lack of stability may adversely impact you in terms of:

  • Schools for your children
  • Employment
  • Travel to work
  • Removal costs.

Of course, if you are a council or housing association tenant you may effectively have a tenancy for life – assuming you don’t breach your tenancy agreement and end up being evicted. 

The government apparently has plans to increase the length of private tenancies to a minimum of three years. If that happens, private tenants will enjoy greater stability.   

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4. You don’t end up with a very valuable asset free of mortgage

As a tenant, you don’t end up with a very valuable property after years of paying rent.

Usually, you end up with absolutely nothing in terms of capital value for all the rent you have paid.

Contrast that with being a homeowner:

  • The property belongs to you during your period of ownership (subject to the mortgage)
  • You own it free of the restrictions of a mortgage once the mortgage is paid off.

To paint a full picture, it should be noted that as a council or housing association tenant, you may gain the right to buy or to acquire your home after living there for a number of years.

Therefore, being a tenant can sometimes lead to benefit other than a roof over your head.

5. You don’t have free accommodation when your mortgage is paid off

As a homeowner, you will have free accommodation once you have fully paid off your mortgage. That will be a huge financial advantage.

Contrast that with a being a tenant; you will be paying rent until you shuffle off your mortal coil.

As a homeowner, once you have paid off your mortgage, you will have considerable flexibility in your housing choices.

For instance, you could downsize to accommodation smaller and cheaper to run.

The money you free up can be used for any number of beneficial purposes of your choosing.

cartoon-jumping-from-happiness-elderly-vector-11754382.jpg6. You don’t have a huge asset to subsidise your pension

As a tenant, your home will never be a huge asset which you can – if necessary – use to top up your pension, enabling you to make the most of your retirement years.

Saving a pension sufficient to live on in retirement is extremely difficult.

As a homeowner, you can use your home to top up your pension by selling or even mortgaging it after you have paid for it.

As a tenant you would not have that option and could face real poverty and hardship if your pension arrangements are insufficient, and you have no other way to address the problem.

7. You don’t have a valuable asset to make lifestyle choices

A homeowner having paid off their mortgage, you will have a wide and pleasing range of lifestyle choices, any of which could make you extremely happy and fulfilled in your senior years.

You could decide to sell up and live in sunnier climes like Spain, Portugal or France

If you were born abroad, you could move back to your country of birth and live in comfort and perhaps even luxury.

You could free up some of the money in your home and use it for any number of worthy or enjoyable purposes including:

  • Giving a deposit to a child or grandchild to help them get onto the property ladder
  • Travelling the world
  • Taking up hobbies or pastimes you have always fancied
  • Starting up a business, venture or enterprise
  • Giving to charities or good causes of your choice.

As a tenant, your home will not contribute a single penny to enable you to make such lifestyle choices.

8. You don’t own a property outright, which you can gift as a legacy

One the most important things for us as human beings is the prospect of leaving a legacy to family members or loved ones. 

Owning your home, even if you still have a mortgage on it on death, gives you the opportunity to leave a sizeable legacy to persons of your choice.

In your will, you could leave the house itself to a particular beneficiary or you could ask your executors to sell it and distribute the proceeds to several beneficiaries.

Owning your own home gives you the chance to leave substantial and perhaps life changing legacies to those you leave behind.

As a tenant, your home is not for you to give to anyone. It is not valuable property owned by you, which you are able to give away.

In fact, on your death, you could unwittingly leave family members with serious problems.

Even if you are council or housing association tenant, family members living with you may not be entitled to take over your tenancy – which means they will forced to move, becoming homeless.

Conclusion

Although many people choose to be a tenant, there are undoubtedly many more compelled to do so on account of the growing unaffordability of UK house prices. 

However, not all parts of the UK are unaffordable, as can be seen by playing around with the BBC’s house price calculator.

If you cannot afford to buy in the area of your choice, but are willing to consider other areas, it may be easier to become a homeowner than you think.

Another big hurdle is raising the deposit to buy. In that regard my book Quick House Deposit will provide you with a wide range of easily accessible and straightforward ways to raise a house deposit fast.

Enjoyed this blog? Please share it with friends.

Are you choosing or have chosen to be a tenant by choice? Why? Do you remain convinced it is a good idea? Please leave your questions, observations or comments below.

You may also find the following blogs useful:

Say no to being a tenant forever (how to escape the tenant trap)
Why become a homeowner (the many benefits enjoyed by homeowners)
Homeowners are investors (the investment benefits of homeownership)
The scary future for tenants (why the future for tenant does not seem bright)
My first property (10 absolutely must know things when buying)
Easy home ownership (10 super-powerful reasons for homeownership)

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Dalton Barrett
Rebel Property Coach

Please follow me on Twitter @Dalton1London
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My website is: www.rebelpropertycoach.com

 

 


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