S1E7: Should you rent or buy?

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24:13If you've got to do one this year, check out TaxApp. You can get 10 % off as well using the code in the link in the description. The code is MONEY10. So that's M-O-N-E-Y-1-0. Okay, T, talk to me about your attitudes towards risk. I mean, I like a bit of risk in my investments, but I definitely would say since the podcast, I've toned it down a little bit, not quite as gung-ho and like carefree as I was in risk. So yeah. Yeah, shooting from the hip all the time, weren't you? Yeah. I think personally that you should take risks, but it should always be in areas where you have a unique skillset, an edge, expertise, like your job, things like this.

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25:22If you know what these acronyms like SOC 2 are, you probably need Vanta. You can book in a demo at vanta.com forward slash making money. There's a link in the description. Can we talk about this decision between renting and buying them from, you talk about numbers and calculations. I want to bring that light to life to people a bit. When I was reading some of the stuff you'd done, you have your kind of rules of like, base it on 5%, you know, as an interest rate, 10 % deposit, but also look at the affordability from a monthly perspective, which I think most people don't. And I think it sounds simple, but most people are obsessed with multiples, right?

25:55So can you just explain? Yeah. So here's the thing, regardless of, as I say, we'll give you the link to that, that whizzy calculator can do it all for you. But here's the thing. The banks want you to think in terms of how much can I borrow as a multiple of my earnings, right? That's how they teach you. And if you look online, you will not find a calculator that can reverse back from, I've got this amount per month. Forget rent versus buy. I've got this amount per month and I've got this deposit. How much should I be bidding for the house based on current mortgage? There is no calculator out there.

26:21Someone said to me, oh, someone's built one somewhere, but I've still not found it. And the reason is because the banks want you to borrow the maximum you can and not to be sensitive to the price, even though you are. And so, for instance, my daughter's got this£1 ,300 a month rent she pays. So if we work backwards, we now know based on how much she can put down and that 1 ,300, don't pay any more out and ideally she'll pay a bit less. What should she be buying houses for that are the same as she's renting? So if we compare that to a one bedroom flat, it might come up with a number of 220 ,000.

26:52Now, those flats are up for$280 ,000. So what we've got to keep on doing is putting bids in, if we wanted to, similar to what she's got, bids in for$220 ,000,$225 ,000,$230 ,000, something like that. Regardless of what they're asking for. Even if they're cheeky bids, just - Just every, if you're not putting a bid in every week for one, right? You've got no chance, have you? And eventually, if they don't sell them, they eventually will come as a market that's softening and eventually falling, and the cost of borrowing is going up and up and up for more and more and more people. Eventually, they will start realising, remember, Something is not worth what someone thinks it's worth, needs it to be worth, or someone told them it is worth.

27:25It's worth what a willing buyer is prepared to pay for it. And if there's no other buyers - That's what it's worth. That's what it's worth. Now, if you don't need the money and you want to wait till 2030 and hope the world's all changed, that's great. But most people are selling a property for a reason, either death, divorce, or debt. They can't afford the mortgage, might be a buy to let. Someone has died, in which case it's not theirs or they're inheriting it, so it's free money anyway. Or they got divorced. And I don't wish anyone could get divorced, but I'll tell you what, there's nothing worse than getting divorced and being in an unhappy marriage or an unhappy relationship.

27:57Just get the property gone. Let's move our own. Is that motivated in that sense? Just going back to that thing is, think about the monthly payment. How much you can pay each month. Yes, and then work back to us, what price do you need to offer given the deposit you've got and the cost of borrowing? And regardless of what they're offering, remember, what they're asking, there's no relation to your situation. And you might be saying, oh, people might say, well, there's no way. There's no way you can do that. Now, here's the thing you've got to remember. Under the Estate Urgency Act, unless the client has specific, the seller of the house has specifically agreed that they do not want to be sent any offers that are not at or above asking price.

28:35They have to submit them. The law is they must submit the offers. So I make a point of, here's my offer. Can you please confirm that the client has not instructed you that they will not, they do not want to receive any offers at or above the asking price. I said, no, they haven't. So I said, fine. So I expect you to... So then you get a letter confirming they've offered it and a letter confirming that they've declined it. And be prepared to keep offering on a property that doesn't sell. That's good. That's good because it proves that you were right in the first place. Just because some other idiot wants to pay what they're asking, what's that got to do with you?

29:07You're looking for an angle. You're looking for a result. You're not looking to be a fairy godmother or a fairy godfather. You talk about framing it from a perspective of how much I can afford on a month. But then you also say that your daughter is protected from all of the costs associated with home ownership because you just got rent, don't have to worry about it. How does someone then sit down and go, this is what home ownership is going to cost me? What costs should they be looking at? I would normally add, as a rough rule of thumb, 10 % to your monthly payment. So if, for instance, it's£1 ,200 on the mortgage at£120 for maintenance.

29:37So that covers, you know, the dilapidations, things that go wrong, boilers, et cetera. But the other thing when you're buying a house, and I would really recommend you do this. My daughter had a friend who was buying a house for 300 ,000. It was all going through and on a well change with Liz Truss and Quasi Quante tried to do their blow up sort of angle, their little experimental project. They had a good time. And I just said to him, we'll offer him 270. So I would just walk away. But he couldn't because he wanted to move out from his parents' house. I said, well, just offer them 270. What else is he going to do?

30:04Who else is going to come? And he ends up getting 10 ,000 off. Then he moves in and finds out the boiler's buggered and it's damp in the back. So clearly, he's just had a basic homebuyers thing. Always check the boiler. Always check any kit that's going to... What really costs you money is boilers and electrics and plumbing. Just check all that stuff, you know? Turn the shower on. Turn it on. Make sure the boiler's working. Find out when it was last serviced. Because I'll tell you now, boilers, whether you're going to get one of these new air source heat pumps or you're going to go for a new gas one, they cost a lot of money.

30:37You know, I've been caught so many times on boilers. Now my standard thing is three to 8 ,000 quid for the boiler. That's how I think on every property. So you factor that into the deal because you're thinking I'm going to need to replace the Even if it looks gimped up and nice, right? The boilers are always the thing that go wrong. Why is that? Because basically, wherever they're serviced or not, boilers normally have about a 10 year life. So I went into one house and it was all very nice and lovely. And the guy had been there 25 years. I said, that boiler, that looks a bit 90s to me. Oh no, it's in perfect order.

31:09I said, yeah, okay, we're going to need to put a new boiler in. Oh, no, it's perfectly old. I said, no, it's a new boiler. It's going to be five grand, and it's probably going to need a new tank because your tank's too small and we need a pressurized one. I said, so I'm sorry, I'm going to have to probably allow 10 grand for my plumbing. That's where I'm at. I'm saying that to him as I'm looking at it. I said, I'm very sorry, but we can't - You're managing the expectations. That's a 90s boiler. It's going to go in a few years. I mean, all of us are getting older, I said. None of us are getting any fitter, you know, because things go wrong.

31:35I said, I'm sure you've looked after it well, but that's just the way it is. I said, that's in my mind. I've got to take that into account. As a first-time buyer or someone who's not as experienced as you, do you reckon people should just, like you said, do their research every day, read about it? Or do you think there's someone you can go to for advice? And at least there's a checklist. Make sure you check the boiler. Make sure you check the Japanese knotweed. Make sure you check the mold. Well, you look on homeowners. The Homeowners Alliance is a great website. that has got loads and loads of checklists, guides, how-tos, what this means.

32:07And it's different, don't forget, the buying process in Scotland versus England and Wales. I'm not buying in Scotland. Northern Ireland also is different. But the point is, is that you can't, don't go into buying one of the biggest things you're going to buy, whether that's for investment purposes or for living in. Like taking the narrative that you're just being told by vested interests, whether it's estate agents, whether it's the banks, whether it's people trying to sell their houses for top money. You've just got to, this is your part-time job. And it will pay dividends because you might not get something really cheap.

32:36If you're buying a lovely house in Cambridge, like walking distance to Jesus College, you're probably not going to get anything really cheap. But what you are going to do is buy it with your eyes open and you'll know, oh, my holding period, I've got to be here for five years. So I can't just go in and, you know, if you're a young person and you think, oh, might meet someone in five years, you know, things could change. Well, if you've got two bedrooms, you've got half a chance. and if you can have a family. So again, don't just think about buying a house with who you are now. You also got to think about who you're going to become and you don't want to be a reluctant landlord.

33:07I've heard of this now. It doesn't really make sense for most people, particularly if you pay good money. Because of the tax. Because of the tax. In your own name, you're going to get taxed on all the income regardless of the mortgage. And most people are in a negative on an investment. And that's actually good because it means there's going to be more people selling what I call peripheral investment properties at more realistic prices because they are bleeding cash. There's a bloke I spoke to the other day. He was crying down the phone to me. And he said, I've got four of these properties and they are draining£2 ,000 a month in total off of him.

33:37Just to pay the mortgage? And one of them, they haven't paid the rent for nine months and he's taking them to court. He said, this is causing me no end of grief and so on. What should have been a simple thing has become a drama. And I said, well, you need to get rid of them all. He said, would you want to buy them all off me? I said, yeah, but I'm not here to save your day. I said, I'll probably pay you what the mortgages are. Oh, well, I can't do that. I said, well, keep with the pain. Keep with the pain. I said, you know, I'm not being funny. I said, you know, do what you can or sell them off individually.

34:02So he's now going to start selling them off individually. He's hoping to get some first-time buyers who are a bit green. This is his words, not mine. And that's the problem is there's an asymmetric relationship between the people who are behind all the selling of houses and you as the purchaser. Remember, as a first-time buyer, you are valuable. Okay? Okay, so don't let that go, particularly with things like the stamp duty thing. You know, so what? So what you don't pay any stamp duty? They can't load that on the property. You know, no, that's your benefit. And don't forget that, you know? I think from the first time buyer perspective, you know, take your time, work it out from what I can afford on a monthly basis.

34:39So that when I'm going at home, I've got a price that that's what I pay and recognize the fact that you're valuable. And that most people in this market that are selling have probably got a motivation that you don't recognize. and that this asking price really is just a number they want, it doesn't mean you have to bid it. Well, here's a little story I heard today. You know the inflation target of 2 % that kind of all the companies like? Do you know that there's no basis in economics for that number at all? It apparently was plucked out of the thin air by a guy at the IMF, I think, who was one of the senior economists who said, it doesn't sound too low and it doesn't sound too high on the basis that we want a little bit of inflation in the economy because that's good because it erodes people's debts.

35:14And that's the other thing to bear in mind. If you've got high inflation, it's actually eroding debt, which that's a good thing. It's reducing the real terms cost of a debt. But also, if you're rising cost of money, and I'm not convinced that we're even at the peak here, I still think there's a bit more to go. And it all depends on how people react to their fixed rates coming to an end. I think it's, depending on who you speak to, it's somewhere between 1 to 1.8 million people over the next 12 months are coming off of fixed rates. We haven't seen nothing yet. So what do those people do then? We've talked first-time buyers.

35:45If you're sat there now with a home on 1.5 % and you're about to go to 5 % and you know that doubles the cost, what should they be doing? Well, you've got to assume, you look at the deals now. I think the deals that you're getting there now are probably not going to change massively. So if it's four to five to six, the rate you pay will be very much determined by the equity and the property. That's the key determinant. Whereas we didn't have much of a difference and it can be as much as 1%. So what that really says is I think if I were someone in that situation, I'm talking six to nine to 12 months down the line, I'd be saying, right.

36:14okay, let's now pretend we're on the new world rate. So I was on two, I'm now going to be on four. I've got to pretend I'm on that rate now and I have to rearrange my budget as if I'm already paying it. Not it's coming, it's happening. It's happening right now. So let's say that was a £300 a month increase in your thing. Now, this may be really tough for some people, particularly people that have gone from two incomes to one, perhaps have started a family or something. But nevertheless, this is what I would do if you can. Pretend it's happened now and recalibrate your budget and all your other major decisions, including do we go on holiday?

36:45Do we change our car? Do we downscale our car? Do we go to the cheaper supermarket? Or do we not have takeaways anymore? Not so often or whatever it is. And make all your decisions based on you are now paying that money and put the money that is the difference between what you will be paying and what you're currently paying and put it in a savings account. Just instant access, you get about three and a half percent now, instant access savings and do not touch it. Now, I'm assuming here also that you're going to get rid of any expensive debt and credit cards and loans and downscale your car if you've got payments.

37:14Just detox yourself. So if you are approaching a time when your mortgage cost is going to go up, and assuming you're not going to sell your house and clear off the mortgage and move into rented for a bit, you've just got to do everything you would normally do anyway to be much more conscious about where you're spending your money and looking for ways of reducing the costs, looking for ways to maximize your income. Pretend as if you're paying that payment now if you can, or to the extent that you can, make all your decisions on the basis of the new world you're going to be in, not the current world that you're living in.

37:48I think, like you say, people don't have a choice, do they? Like it's coming, so you might as well try and prepare now. And yeah, and the other thing is get friendly with a good mortgage broker, because although you can look on things like Money Facts and other comparison sites to give you an idea, a good mortgage broker, particularly if, you know, depending on how much you're needing to borrow, or your circumstances are a bit more chancy, like you're a contractor, or you've had a reduction in income, or you've got part-time pay, or you have a large bonus situation, or whatever it is, or you're a limited company director.

38:17If there's anything where you don't tick all the perfect boxes of the perfect borrower who doesn't exist, or there's only like three out of 10 people who meet that criteria, you can still get good deals if certain brokers know how to present you and they know which lenders. So it's good to get - You can lock them in for six months as well. I was just going to say, the other thing is, once you get your mortgage offer, not the offer in principle, but the formal mortgage offer, we've surveyed the property, we've checked you out, we've looked at your pay slips, we've looked at your bank account, yes, we're happy to offer you this.

38:46And assuming no changes to your circumstances, you've got up to six months normally, from which you've got for your solicitor to draw the money down, and the offer can't be taken away as long as your circumstances haven't changed. The beauty about that is you probably need to start that process a couple of months before that, right? Because it takes six to eight weeks to get the offer. And so what you could do, as long as you're not having to pay out big fees, and many of these mortgages are free valuation, free legals, as long as you don't incur lots and lots of costs for this, you could get an offer secured now, arrange your finances as if that's going to be what's going to happen.

39:22So do your spending plan and all the other decisions. But if something comes out that's cheaper between now and as you approach D-Day, your old mortgage finishing and you having to draw down the new one, you can apply for a new one, can't you? You're not stuck in as long as you haven't paid large amounts out for the privilege. Yeah. But don't put your head in the sands. You've got two ways of dealing with this. And I've got a Ukrainian guy I speak to when he says, you can either run to the enemy or you can cower from them. He said, we choose to run to the enemy. And that's the mentality. And so you've got to run to your financial issues and deal with it.

39:58And it's particularly difficult. And I just mentioned this point, Damian. It's particularly tricky in couples because many people find it difficult to talk about money. They find it difficult to get on the same page. They aren't always clear about their values. Are they the same? What you find is that with couples, they often can be at mis-messages, misunderstandings, and what they're thinking is not what they're saying. or what they're saying their partner's not hearing. And it can cause tension and issues. And don't forget, particularly if it's your home, and particularly if you've had children or you've had a change in your circumstances, it can become very emotional very quickly.

40:35So you've got to try and you've got to start. It may be, particularly if you as a couple find it difficult to really talk about money in a way that doesn't end with either a row or acquisition or some tension, you've got to take small steps to look. I've heard this brilliant thing on Damien's website. or a podcast about how to think and feel about money. One thing we've got to do is get on the page, go back to what I said right at the beginning, what does good look like? And what is the role of this property purchase or what is the role of this house that we're living in now or do we want to move?

41:08Would this house still fit? I need if it was 700 extra a month because that's what it's going to be when the rate rise comes in. Or do we still feel comfortable living here paying 700 pound a month extra? Or would we be better off paying 1 ,000 pounds a month extra moving and all the drama that goes with that. Yeah. Yeah. I think, you know, there's two elements, isn't there? There's first-time buyers and then there's people that are already in homes and the needs of both, as you said, the first-time buyers kind of want motivated sellers to come to the market and sell their houses at a discount and be stuck.

41:38And they're coming. They're coming. Yeah. But, you know... My phone messages or anything to go by, they're coming because buy-to-let landlords are hurt. People are only in their own name who've bought in the last six, seven years or have become reluctant landlords because they've moved on and kept their property, which is a lot of them, they are bleeding cash. So I think not that they're your saviour, but they are certainly a significant number of people and particularly in London. And for people that don't understand what's going on there, that's simply because of the way that tax is treated on mortgage interest.

42:07They can't offset that as a business cost as such. They have to pay tax on the full amount. So just to be clear, if you've got a thousand pounds a month coming in rent, you're taxed on that thousand pounds a month, regardless of what it costs you to run the property. And you get a small allowance, 20 % of the cost of the borrowing deducted off of your tax bill. And so that's happened over the last six years. That's been very painful for many people on the old rates of the twos and three percents. But don't forget, buy to let landlords are now looking at going from 3 % to 6 % or 7 % in some cases, and particularly if their own income position is a bit more chancy.

42:43It may was starting to look like kind of just about holding itself together is now going backwards. So every month that goes by, there's money being taken out of the landlord's pocket. Yeah. So the key thing that I'll take away from this conversation is the whole be patient point. I think there's a lot of panic in housing purposes. I'd love to be a first time buyer now. Oh, great. Just wait. I would say if you're in the dating scene, right, as I said to my daughter, she's single and she's quite demanding. I don't think there's a man out there that exists that will meet the requirements. She said, she said one of the requirements I have, she said, is he must qualify for the first time by a discount.

43:18Oh, wow. She was. You taught her very well. You're saying that, isn't it? Yeah, yeah. I said that to her. I said, just don't ask him how much they earn. Ask him how much they save. Yeah, yeah, yeah. So you've obviously been on a journey financially. You said you started poor and you are where you are now. I kind of want to know, how did you become good with money? I wouldn't say I'm good with money. I'm a reformed character. It's always there in the background waiting to... What is? Poorness. Mayhem. Poorness. Chaos. Chaos. Ridiculousness. Impulsiveness. Because I'm naturally an extrovert. I'm a naturally impulsive person.

43:57No, you're an extrovert. I thought you were quite insular, to be honest. But what I've learned over the years, I've had to learn coping strategies. And this is something I would suggest also. Learn about your own money styles. There's lots of different types of... Just Google search money types, money styles. There's about eight versions of the money types. and there are between six to 10 money types. Avoidance and yeah. Whatever, you know, architect or whatever they call it. My daughters are architects so they need every loads of information. They need lots of time to think about it. They're very cautious.

44:24They're always worried about downside. They're worried about scarcity. Sounds like you too. The coin logs are very, very impulsive. But once you know who you're predominant, we all have aspects of us and our wiring and our upbringing and our stories that we've heard and all those things influence us. But once you understand who you are, you can understand, And you can play to your strengths and you can try and deal with your weaknesses. So in answer to your question, what's helped me, I think, become the person I am now, and I certainly don't count myself as wealthy. You know, I'm not a sultan of Brunei and I've got boats and nine houses and stuff.

44:57But what's got me to the position where work for me is optional. I work because I want to, not because I have to, is I've always thought abundance. I've always seen opportunity. You know, I've all, was it 10 minutes from the tube station to meet, to have a chat with you? Never met you before in my life. Why would I do that? I'm a busy guy, but I can always spot opportunities. I'm always prepared. I make time in my life for always taking a bit of a risk, for always trying new stuff. In terms of money, it is just money. If I suddenly got ill or died tomorrow, I wouldn't define my value as a human being based on how much wealth I've got and how much money I earned because I don't really spend much money, neither me or my wife, you know.

45:38But what I do think for me is it gives me the opportunity to do things like this. I'm here talking to you. I do my citizen's advice, volunteering. I give money to charity. And I do things that wouldn't necessarily be economically amazing. I still do all my business things because I like them. And someone says, what's your hobby? Apart from staying married and healthy, it is business. I like business. I like value creation. I like investing in businesses. I like investing in property. I like creating content and ideas and expressing things. and more importantly, giving people optimism. So the thing that has saved me, and I have had many failures in my career, is I've always been optimistic about the future.

46:17I've always believed that failure is just another little step forward. And I've always thought to myself, the things that you think are your weaknesses. So in my case, I didn't have a great education. I had a very poor upbringing and mad sort of parents and complete mayhem. But actually, that's the source of my success because it's made me very resilient. And it's said to me that there's nothing that can happen in the world that could phase me that I haven't already looked down the barrel of a gunner, as it were, in terms of growing up. So what you think is your impediment, whether it's your age, your education, your ability with numbers, maths, whatever it is, stop telling yourself that story that's holding you back.

46:56But equally, don't define yourself, your value as a human being by how much money you earn or how much you've accumulated. Just say to yourself is that money is going to be a force for good in your life. It is just money. It's a unit of exchange and enjoy the journey as much as the destination. And so that's really my view. And, you know, I'm 54 next week and I think to myself, well, if I had to sort of, you know, hang up my boots now, I'd be very, very disappointed because I still think there's fuel in the old tank. Value to add. But I still think, God, I've done quite a lot of stuff. And even the failures and even the setbacks and the disappointments and the mess ups were great fun.

47:34the key is make sure you know don't try and make killings and don't do anything that can kill you and always plan for a new boiler yeah always always always put the value aside for a new boiler because if it can go wrong it will do if you'd like a bullet point summary of this episode then subscribe to our newsletter in the description we'll also include all the links that we mentioned in this episode there as well i'm damien jordan and i hosted this episode with my great mate to Maina Kerala. The episode was recorded by Jack Hobbs and edited by Johnny Hunter. Music is by Felix Taylor. It was produced by Ruth Edwards and brought together by Will Stollerman.