What is it about property that makes everyone think that its the ideal investment?
I was talking to some friends of mine the other day who said that they were thinking of moving to a bigger house nearby before house prices got too expensive. At the moment they live in a nice 3 bedroom house in a small town about 10 miles from the city that I live in. I asked why they wanted a bigger house, because I know full well that there are only the two of them, and that’s the way its likely to stay. The answer was, that a bigger house will be worth more money in a few years time (we’re supposed to be thinking about 10-20 years here) and so that will make them richer.
What are the problems with this? Well, essentially, the money is tied up in the house. To release it in 10-20 years time will need them to then move to either a smaller property, or one in a cheaper area. Once they’ve spent 10-20 years in large nice house, I think that psychologically, it would become a problem to downsize. They’re proposing a very large lifestyle inflation and I can’t see them wanting to move back down the ladder.
I suggested staying where they are and investing the excess money. I wouldn’t say that this was so much an unpopular suggestion, as that I may as well have said would you like to emigrate to Mars. I think that the concept of investing in anything other than property (they already have an existing rental property) is completely alien to them.
In the end, if financially and psychologically speaking trading up their house really is a good idea compared to investing the money, they should go for it. If they are just wanting a bigger house because they think it will be a good investment, and they haven’t considered any alternatives, I think that’s plain dumb.
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