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Property Prices Outrages, What Should I do?

alanwatts6253

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Apr 12, 2018
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Hey Guys,

I was wondering if you guys had any advice for a 28 year old.

Me and my girlfriend will soon be looking into buying our first property and luckily we will be able to buy it outright without any mortgages. That said, at the moment the property prices in my country have reached outrages levels which I don't believe is sustainable for long.

I feel that if we buy now when prices are at an all time high we would be doing ourselves a disservice as we could buy a better property if we wait for the prices to adjust(This could not happen but we are willing to take the risk).

Our country is part of the EU so we are weighing the option to emigrate to another country for a few years before coming back here to purchase property. Who knows, maybe we may even end up staying abroad.

The only problem is that I don't know what to do with the cash in the meantime, I don't want to just let it lose value in the bank, I would like to at least earn some interest on the money.

What do you guys think I should do with the cash, keeping in mind that I prefer safety over earning potential and also keeping in mind that the government only guarantees just a proportion of the amount in the case that the bank defaults?
 

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NanoDrake

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In Real Estate, if you apply the 80/20 rule you will get that amongst many things, 2 factors carry the majority of the value: the location and the price.
If you buy an apartment in central London and stay committed long term, price is not as relevant (yes it might go down but in 15/20 years for sure will be only up, unless the Russians decide to nuke the hell out of London) if you are considering to buy a nice apartment in some decent areas, then also price comes into place and your consideration of pricing is actually correct.
I would stay cash till the next cycle comes into place.

Where I would put my money? it really depends:
A) how much you want to risk your capital
B) what is your plan for that cash? just leave it there and take even a small1%? or go full in with stocks?
C) what income plan you have for the next 5 years? if shit hits the fan and you get fired/bankrupt/sued what and where is your safety net?
D) You talk about Europe, well, you know, Europe is made by 28 EU countries + others in the economic zone, where would you go? Malta? where RE prices soared? CZ? same story...retire in a tiny Croatian island? go to Athens and try to usurp apartments from squatters?

There is no "do this and do that" answer. if you are looking to educate yourself on possible options do the following:
A) talk to your bank
B) talk to an investment firm
C) talk to an insurance firm.

then decide what is for you.
 

Kak

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Just because you can pay cash doesn’t always mean you should. Cash is king.

I have no advice for you on your purchase. It is a life decision, not a business decision, it can’t be held to objective standards. Be wary of someone who hard line says DO IT and also someone who hard line tells you DON’T DO IT. All I can share are my experiences.

My experience in home ownership has been right down the middle of the road. Could I have rented for the same price per month? Yes. Would it be as nice of a place? No. Have I made money on my home value? Probably. Did I count on it as some sort of savings plan or investment? No. Would I buy a home again? Probably. Will I ever rent again? Probably.
 
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alanwatts6253

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Apr 12, 2018
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In Real Estate, if you apply the 80/20 rule you will get that amongst many things, 2 factors carry the majority of the value: the location and the price.
If you buy an apartment in central London and stay committed long term, price is not as relevant (yes it might go down but in 15/20 years for sure will be only up, unless the Russians decide to nuke the hell out of London) if you are considering to buy a nice apartment in some decent areas, then also price comes into place and your consideration of pricing is actually correct.
I would stay cash till the next cycle comes into place.

Where I would put my money? it really depends:
A) how much you want to risk your capital
B) what is your plan for that cash? just leave it there and take even a small1%? or go full in with stocks?
C) what income plan you have for the next 5 years? if sh*t hits the fan and you get fired/bankrupt/sued what and where is your safety net?
D) You talk about Europe, well, you know, Europe is made by 28 EU countries + others in the economic zone, where would you go? Malta? where RE prices soared? CZ? same story...retire in a tiny Croatian island? go to Athens and try to usurp apartments from squatters?

There is no "do this and do that" answer. if you are looking to educate yourself on possible options do the following:
A) talk to your bank
B) talk to an investment firm
C) talk to an insurance firm.

then decide what is for you.
Property prices have soared to exorbitant levels especially when compared to the average wages. Even though real estate is scarce here and it could have been undervalued I still don't see the sustainability of the RE market for various reasons.

I have a location independent business so I could move anywhere but I was thinking of either Barcelona or Lisbon(rent is cheaper than here believe it or not) or I could keep on living with my parents(though I'm at a point in my life where I would like to be fully independent).

The local banks are heavily invested in the real estate market and that is one of the factors that scares me from keeping money in local banks, god knows what will happen when the property bubble bursts.

I have worked very hard and saved every cent with the final goal being that whatever happens, there will always be a roof over my head so I need as much safety as possible when considering investments, that's why I've always stayed liquid to be honest.
 
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alanwatts6253

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Apr 12, 2018
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Just because you can pay cash doesn’t always mean you should. Cash is king.

I have no advice for you on your purchase. It is a life decision, not a business decision, it can’t be held to objective standards. Be wary of someone who hard line says DO IT and also someone who hard line tells you DON’T DO IT. All I can share are my experiences.

My experience in home ownership has been right down the middle of the road. Could I have rented for the same price per month? Yes. Would it be as nice of a place? No. Have I made money on my home value? Probably. Did I count on it as some sort of savings plan or investment? No. Would I buy a home again? Probably. Will I ever rent again? Probably.
We know what we want from life and owning a home is something that we truly want, we will simply not have it any other way. That said, we are not expecting any ROI and the decision is not an investment one. I believe in having a good and constant environment to live in and owning your house is one of the few ways you can make sure of that - apart from countless other benefits.

Even though we don't see purchasing a house as an investment we are also playing with ideas such as purchasing a house were we're able to rent out a couple of rooms for some extra income(although this would probably require a small mortgage).
 
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Kak

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We know what we want from life and owning a home is something that we truly want, we will simply not have it any other way. That said, we are not expecting any ROI and the decision is not an investment one. I believe in having a good and constant environment to live in and owning your house is one of the few ways you can make sure of that - apart from countless other benefits.

Even though we don't see purchasing a house as an investment we are also playing with ideas such as purchasing a house were we're able to rent out a couple of rooms for some extra income(although this would probably require a small mortgage).
Like I said. It’s not always best to pay cash, just because you can. If a larger house and the income from rented rooms is an arrangement you are interested in, that is something that will certainly help pay the bills on the property.

Have you considered property taxes, insurance, etc? Sometimes the word ownership and even outright ownership as it relates to real estate is a bit of an exaggeration.
 

NanoDrake

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@Kak is making a great point @alanwatts6253

I'm under the impression that for you what matters is to have an house where you can have a "positive" environment, meanwhile Kak is trying to make you think through it and keep your eyes focused on the game.
You can own a house and live there, and that would be an expense.
You can buy a house, rent it, and go live somewhere else using the rental price difference to cover your living costs, that would be a real estate investment.
You can own 2 houses, live in a 3rd that you are renting and using the profits from the other 2 to buy other assets, that is investing.

You can have a great place to live even inside a tent on the shores of a lake, but the game is to make cash, not spending it to feel good :)
 
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alanwatts6253

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Apr 12, 2018
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@NanoDrake & @Kak Don't get me wrong, I appreciate the advice but you are only seeing a capitalist perspective while ignoring my personality, who I am and what I want from my life - maybe I didn't explain myself clearly so I am to blame.

I have nothing against capitalism or people making money but I am not a full on capitalist and actually enjoy a modest life, I'm not looking to get a fancy extravagant life with plenty of cars, women & mansions...I don't mind working, even if for someone else... owning a home without mortgages will give me a chance to do work I actually enjoy for the rest of my life instead of being imprisoned in doing something I don't want to do - just to pay my bills.

Being a very risk-averse person this is the way I see it.... If I purchase a house and take 39 years to pay the mortgage(at the current interest rates - which is low right now) I would have paid double of what the house was actually worth.

Additionally when you don't take out mortgages you would have essentially made a 3.9% yearly return on your money for 39 years. I know of no other investment method that will ever yield those returns safely year after year for 39 years.

To be honest I wasn't seeking advice on whether I should buy or rent a house(I already know what I want), what I would like to get advice on is what to do with the cash until I wait for a price correction in the property market - which is bound to happen. I consider keeping cash in the bank as medium to high risk because of how heavily dependent and invested the local banks are on the property market.
 

Kak

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@NanoDrake & @Kak Don't get me wrong, I appreciate the advice but you are only seeing a capitalist perspective while ignoring my personality, who I am and what I want from my life - maybe I didn't explain myself clearly so I am to blame.

I have nothing against capitalism or people making money but I am not a full on capitalist and actually enjoy a modest life, I'm not looking to get a fancy extravagant life with plenty of cars, women & mansions...I don't mind working, even if for someone else... owning a home without mortgages will give me a chance to do work I actually enjoy for the rest of my life instead of being imprisoned in doing something I don't want to do - just to pay my bills.

Being a very risk-averse person this is the way I see it.... If I purchase a house and take 39 years to pay the mortgage(at the current interest rates - which is low right now) I would have paid double of what the house was actually worth.

Additionally when you don't take out mortgages you would have essentially made a 3.9% yearly return on your money for 39 years. I know of no other investment method that will ever yield those returns safely year after year for 39 years.

To be honest I wasn't seeking advice on whether I should buy or rent a house(I already know what I want), what I would like to get advice on is what to do with the cash until I wait for a price correction in the property market - which is bound to happen. I consider keeping cash in the bank as medium to high risk because of how heavily dependent and invested the local banks are on the property market.
I’m really not sure of the question then.

I’m supposed to consider who you are and I don’t know you. You asked about home ownership...

The only answers to your questions are for you to decide.
 

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NanoDrake

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@NanoDrake & @Kak Don't get me wrong, I appreciate the advice but you are only seeing a capitalist perspective while ignoring my personality, who I am and what I want from my life -
.
Then, my friend, this place isn't really the place I think you are looking for :D
I replied in full to what to do with your cash: speak to the 3 people I wrote you, ANY OTHER THING IS WRONG OR IRRELEVANT.
If for you putting cash in the bank is already considered a medium/high risk, I'm afraid I have bad news....
 
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SteveO

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It is your choice to purchase a house cash or not. Nothing wrong with that. It is not easy to give advice on market dynamics especially if it is a market that few of us would be familiar with.

This forum is primarily filled with people that are putting businesses together. Most of the discussion is around gaining capital to start, processes and practices, or growth.

It is a supportive group within the expertise.

There is also discussion on mindset and motivation.

There are a few that own houses with no mortgage though. Most of them already have successful businesses.

The answers you are getting from the mainstream here are going to be different than what you are looking for. You are looking for stability. Most here are looking for rapid growth.
 

Merging Left

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If you know you want to purchase a house, are down for a modest life, and can afford to pay cash outright, why bother waiting for the correction? What if prices continue to rise and there isn't a correction? Aside from feeling like you don't want to pay this much, if you don't plan to move, and you own the house outright, a price reduction doesn't really impact you at all. You still own your home, which you have no plan to sell, so you're really no worse off except that you paid more than you may have some buyer's remorse about your timing.

Now, with regards to a mortgage, consider this:
Let's say interest rates are 4.5% on mortgages. Can you earn more than 4.5% in the market? If you can earn 5-6% in the market, wouldn't it make more sense to mortgage your purchase, and earn an extra 1.5% or more on the money you didn't put into your house? Leverage is a tool if you use it correctly.

Where did your 3.9% return figure come from? That's not much when you consider inflation is generally around 3%. What happens if there is a correction that drops your 3.9% return to 1.2%?
 
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alanwatts6253

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Apr 12, 2018
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@Merging Left the 3.9% I referred to is the average interest rate for mortgages in my Country.

I see where you're coming from, let's say that you are skilled enough to earn 5-10% yearly from your cash in the market and you pay your mortgage from these earnings without touching the principle... But what you fail to understand is that this is a 39 year risk and in 39 years a lot can happen. So do you think that one is able to perform at the rate of 5%-10% growth each year for 39 years without any losses?

For me the risk is bigger than the reward especially when all I want is to own my house nothing more.... I understand that some people want more from life and seek a bigger growth but even then, that strategy is flawed simply because something bad is bound to happen in those 39 years. Best to completely own the essentials and risk your 'playing' capital.
 

Merging Left

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In that case, since you can afford the house outright, why not just buy it now? Like you said, this house is not an investment for you; it's just a place to call home that you love. So if the "value" of the house decreases, you are not impacted.
 

NanoDrake

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@Merging Left But what you fail to understand is that this is a 39 year risk and in 39 years a lot can happen.
I'm sorry but there is a huge logical fallacy that I've to point here:

You just want your house to live there a modest life, therefore it's not for commercial values
Dude, you are using a meter to measure a gas.
 

WJK

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Hey Guys,

I was wondering if you guys had any advice for a 28 year old.

Me and my girlfriend will soon be looking into buying our first property and luckily we will be able to buy it outright without any mortgages. That said, at the moment the property prices in my country have reached outrages levels which I don't believe is sustainable for long.

I feel that if we buy now when prices are at an all time high we would be doing ourselves a disservice as we could buy a better property if we wait for the prices to adjust(This could not happen but we are willing to take the risk).

Our country is part of the EU so we are weighing the option to emigrate to another country for a few years before coming back here to purchase property. Who knows, maybe we may even end up staying abroad.

The only problem is that I don't know what to do with the cash in the meantime, I don't want to just let it lose value in the bank, I would like to at least earn some interest on the money.

What do you guys think I should do with the cash, keeping in mind that I prefer safety over earning potential and also keeping in mind that the government only guarantees just a proportion of the amount in the case that the bank defaults?
You need to study real estate in the markets that interest you. Calm down. Make a plan AFTER you find out what you are looking for. Timing is everything in all business deals. Think of yourself like a animal of prey. You need to stalk your intended target. And then strike when the moment is right. You'll only know he what and the when after you educate yourself.
 

SteveO

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No like/thanks for any responders. This is a person just looking for verification of his own ideas.
 

biophase

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No like/thanks for any responders. This is a person just looking for verification of his own ideas.
Agreed this thread makes no sense.

Rent for now, put your money in the bank, wait for a downturn, buy your dream house.

There’s actually nothing else you can do because you are you. And you are risk adverse so you would never invest in the stock market. You need to put your money in an interest bearing savings account.

You don’t have any other real options because of your current state of knowledge.
 
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alanwatts6253

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Apr 12, 2018
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No like/thanks for any responders. This is a person just looking for verification of his own ideas.
You are 100% SteveO I was completely impolite and I apologize for that. Thanks you guys for all the input that you gave and the time you put in I really appreciate.

Agreed this thread makes no sense.

Rent for now, put your money in the bank, wait for a downturn, buy your dream house.

There’s actually nothing else you can do because you are you. And you are risk adverse so you would never invest in the stock market. You need to put your money in an interest bearing savings account.

You don’t have any other real options because of your current state of knowledge.
I am quite well-versed(and realistic) on investments actually(albeit not experienced) and this is the reason I'm risk averse. If I wasn't knowledgeable I would be putting my money in all kinds of places right now and having a positive outlook of how much money I'm going to make. I'm not sure where you guys are from but in the small country I live in opportunities aren't as abundant as in major countries like the US,UK,AU etc etc..

Out of curiosity & to continue the conversation, Let's say you have marketable skills and time/willingness to learn, how would you use your resources & time to put yourself in a better financial position long-term in the fast-changing world we live in today?
 

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