4 ms·
>> "You are failing to account for the capital built up in the property which is only returning 5% (on average), whilst it could be earning a (historical) avera
by axod 17y ago
>> "You are failing to account for the capital built up in the property which is only returning 5% (on average), whilst it could be earning a (historical) average of 12% elsewhere. (The average index fund growth.)"
Yes but with a mortgage you're effectively investing someone elses money (the banks). You get to invest a large amount of money into a pretty good return investment, with hardly any outlay from yourself.
If you were renting and putting the (maybe £100 a month max) difference into some investment, you'd make next to nothing on that. But with a mortgage, you're 'investing' the banks money as well as your own.
I've only bought 2 houses in my life (3rd one soon), but both were financially very good. Even in the current market.
- notauser 17y agoIf you have £100k of equity/capital in your house then on average (long term historical index investment) you would have made £864k investing over 20 years vs a historical average of £165k in a property. (Here's a source for the 12% figure - http://www.finfacts.ie/stockperf.htm http://www.finfacts.ie/stockperf.htm ) The money your borrow from a bank can (depending on relative cost) close or open the gap. If average return is 5% and the average cost of borrowing is 2% (over 20 years) then you would make an additional £80k per hundred thousand borrowed. However if the average mortgage rate is 8% then you would lose an additional £80k per hundred thousand borrowed. Capital growth will also add something - over the last 20 years it was about 100k per 100k invested/borrowed. 2% and 8% are both well within the historical mortgage rate trends. Renting helps reduce your exposure to this, whilst increasing your exposure elsewhere. All calculations are pre-inflation.