Right boys, gather round, because this shit is VERY important.
When I graduated from University every single one of the 7 lads I lived with got jobs and a mortgage within 1 year of graduating. The message we had forced down our throats was that getting on the housing ladder was the number one way to secure our futures.
I was lucky, my friend Clint, who I met while I lived in Germany, had explained to me otherwise. Clint is ‘authorized’ to give advice because he has a brain. Now I am explaining to you.
From time to time on this blog I am going to expound on the virtues of keeping yourself free of obligations – Marriage/Kids/Debt/Payments – things that tie you down and push you into situations where you are at the mercy of the whims of the mop heads and have to do things that are contrary to your own self-interest.
I want you to be an attractive, stable man of high value with boundless freedoms of opportunity. In short, a cool fucker like me. There’s no point learning all the best openers if you’re stuck working at a dead end job in Salford for the next 20 years.
Keep yourself free of commitments and debts in your worthless 20s, instead of paying off debts all through your worthless 20s, pay into savings and investments. Ten years of aggressive savings in your worthless 20s will leave you on your 30th birthday in a position where you can call the shots for the rest of your high value life.
As a man, at the age of 30, believe me, your life has not even begun. The traps ‘aint even opened yet.
There’s a problem. That problem is conventional wisdom. Your peers, parents, family and friends are going to inundate you with bad advice. The fact they have made no significant attempt to study the subject and are just regurgitating conventional wisdom won’t prevent them from mouthing off and ruining your life.
It’s all hot air and waffle passed on from idiot to idiot. No different than the conventional wisdom that told us the earth is flat.
A mortgage is not an investment. It’s a massive fucking credit card debt.
Property is an investment. A mortgage is a liability, a massive fucking leech that sucks all the nutrition out of that investment. Mop heads get these two things confused.
Mop heads are thick as pig shit and they make all the wrong decisions and get themselves quickly onto the debt/work treadmill. We want them to do this because it increases our value relatively. Mop heads do very little with their lives other than the most mundane bullshit, then they trumpet the little they have done as if it were enormous achievement.
‘I’ve had three great kids, I have a house, I have a job, I have a car, I work hard, I do the best I can, I’m bald, fat and unhappy long before my time’.
The only way their mediocre lives ever touch exciting big money is in the price of their home. They think because they have a mortgage on a pile of bricks that they paid £300k for, that they are little Lords with their £300k and rising asset. They don’t realise a mortgage is just a massive fucking credit card bill. They don’t realise that while their house has gone up in value by five grand this year, they have paid more than that in interest to the bank. They have made fuck all, they’re just tied to a massive obligation which comes with Council Tax payments.
No, they only way they feel they can touch the big money is by housing, so they emotionally attach to it, they think they understand it on a deep level, and they espouse it’s benefits. They haven’t got a fucking clue what they are talking about. ‘Renting is dead money’ they say. ‘The earth is flat’, they used to say.
The problem is, all this renting is dead money talk may just scare you into thinking you’re missing out. Let me tell you this:
If you avoid a mortgage and rent, you’re missing out on Jack Shit. In fact, you’ll possibly make more money.
The fact is, it depends on your situation and 100 million other things. It depends how much your house costs, what interest rate your mortgage, how long you take to pay it off, how much of a deposit you have, how much less renting would be to your mortgage and what rate of return you can get elsewhere.
My argument is that if you don’t ‘get on the property ladder’, it’s not a given that you’re missing out on future security, in fact, you’re likely missing out on absolutely nothing whatsoever.
See the thing is, houses are a great investment. Mortgages are not. People see the house and forget the mortgage.
So, I recently sat down with my friend Rachel and in her situation, here are some rough figures.
Buying
Cost of her house: £200,000
Principal Deposit: £20,000
Interest rate on mortgage: 5% (assuming this never goes up or down, if it goes up, she’s fucked)
Time: 25 years (most people sign a 30 year mortgage, this means more interest, a 30 year mortgage in this example would absolutely destroy the argument for buying, but I have to use Rachel’s example, she is signing for 25 years).
Monthly mortgage payment: £1,175
Total cost of ownership: £352,499 (This excludes all repair costs and property taxes she must pay as well as Capital Gains Tax on selling the house).
Future value of house in 25 years: Your guess is as good as mine. Let’s say it doubles in price. £400,000.
Total profit: £47,501
So in 25 years, Rachel sells her house and she has £400,000 to go and retire abroad. She definitely has £400,000 in the bank. She paid £352,499 in though.
Renting
Monthly rent: £500 (this is more than she would need to rent an apartment in the location she is considering, I am well over-blowing it here, for £500 she’s be living large).
Money saved against mortgage repayments each month that can be invested elsewhere: £675
Principal Deposit: £20,000
£675 invested for 25 years at 4%: £404,141.
(Now this is another big conversation. It depends where she invests, but I am getting a comfortable 9% across my investments. 4% is ridiculously low. Bear in mind, most dividends are returning an easy 3%, it doesn’t take much grey matter to up this as a return).
Total paid in: £352,499
Total Profit: £51,642
So in 25 years, Rachel has no house to sell but she has £404,141 to go and retire abroad. She definitely has £404,141 in the bank. She paid £352,499 in though.
You can see that by renting, Rachel is actually even slightly better off. And I’ve been VERY favourable to the housing market in this comparison. If you bump Rachel’s investment return up just a half a percent, or increase interest rates by half a percent, you start to see some real differences. So this bullshit about renting being dead money is arse talk from very stupid people.
I advise you to sit down and do your own maths, look at all the angles. Don’t get conned by mop heads into thinking you need to get on the property ladder, or any kind of long term obligation or commitment, because if you do, you’re then putting yourself in a situation where you lose a lot of your freedoms and you are at the whims and demands of others.
Sometimes mortgages will win, sometimes they will lose. Even when they win, even if Rachel ended up £50k richer over 25 years… ask yourself if the 25 year obligation is worth an extra £50k.
In terms of property as a smart investment, you can do just as well, if not better, and be a lot more mobile, if you look elsewhere.
My advice for lads in their 20s.
Work hard and save up hard,
Learn game, preferably from a cool fucker like me,
Keep your cost base as low as possible for 10 years,
Avoid debt,
Avoid signing up for monthly costs,
Do not get married,
Do not have kids.
Lads, let’s get it right. The revolution starts here.
Inspiring as usual Jimmy.
When my paycheck comes at the end of the month I put away 33% into a savings account. Even though I am on the younger side, my savings are starting to build up now but I feel like the current savings rates are doing nothing for my money (less than 3% in my case). I have started to do a lot of reading and research into investments and building an investment portfolio, and would like to hear your opinions on the best way to make this work..
First of all remember that interest compounds. In the early years it makes no difference, it the years when you in your 50s it starts to get serious. Google ‘compound interest calculator’ to see what I mean.
I am not sure enough to give specific investment advice, but the fact you’re saving at all is good enough. Especially 33%. That’s magic. I am happy to hear that.
Have a read about investing, try Captain Capitalism and some of the links on his page, but beware the doom porn – the stock markets are all about to crash, the pound is toilet paper, etc. I’d say spread your money around a bit, don’t have it all in Sterling in one account, don’t have it all in stocks. Have some of it in stocks, some in Sterling, some in Swiss Francs, some in gold etc (buy from someone like BullionByPost.com).
Do some research first. End of the day, if you’re saving it not spending, you’re building a big cushion of Fuck You money if your boss every gets fruity with you.
My boss got fruity with me last week and I put her right in her box in no uncertain terms, she was throwing a fit and I just told her I no time for her hysterical non logic, she could take me or leave me. She took me. Cause I have fuck you money, I rule the roost at work and no mistake.
You know when you read something and you can totally relate to that article.
Well I just want to let you know Jimmy that this post couldn’t have come at a better time. I’m currently 24yrs old, on a graduate programme and just last month I went to the bank to get a mortgage promise for fear of missing out – just like u said – because most of my graduate peers have been signing up for mortgages and kept telling me “how I was pissing my £400 by paying off someone elses bill”
Honestly its posts like this that provide much needed clarity to a youngster like me.
If theres anything you can take away… then its this… By writing this post today you’ve definitely saved at least one kid from signing his life away to a cubicle for the rest of his life and for that im very grateful. Cheers
Thanks lad. It’s true. Just sit down and work out the figures for yourself. Every situation is different. I have a mate who got a mortgage but rented his house out, so it changed things for him, it was a good move. However, managing tenants causes him a bit of grief from time to time.
If you do your maths you’ll very likely find that renting, even renting for a few more years, is absolutely no worse than buying. Even in cases when mortgages win over renting, it can often be by a slim margin and you have to ask yourself, is 25 years of commitment really worth an extra 20 grand?
To some it is, to some it isn’t. I can’t answer that, but I am very glad that you have your eyes open and aren’t just wandering blindly into the scam. You’ve made my day.
You know the first few years of a mortgage are often all or almost all interest payments anyway. You may as well rent and if you really must buy a house, save up a fat deposit. If there’s one thing that kills a mortgage it’s fat deposits and over payments.
When people talk about the value of their house in the future they also forget about inflation. In your example your friend’s true value in TODAY pounds/dollars is 30,564. 17K of it is lost after you factor in 25 years of inflation.
I’d also wager she would have to invest at least 10K worth of repairs over the course of 25 years or else selling it would be a bitch.
In the end like you said, you’re not really getting much out of it since a shitload of money goes into the banks pocket, the governments pocket, inflation, and the repair/maintenance bills.
If a man simply rents a low cost place, has a good income stream, saves the bulk of his cash and takes care of himself he is set. He has freedom. He can do whatever the fuck he wants. The ability to just say fuck you and walk away from anything is huge.
On another note, is there a way to contact you so I can ask a question? It’s along the lines of money/lifestyle/career since I’m in a similar situation as yourself.
Excellent points. I didn’t mention inflation because I figured it was a like variable for the renters alternative investments anyway. But in terms of how people see their investments, this is very true.
Talk about the ability to tell people to fuck off, I have a blog post coming on that too.
I’ll send you my contact details.
For anyone reading – I know skirt better than anyone and any questions about skirt I’ll answer as a self proclaimed authority, but all the money and financial advice, I am not an expert and I’m nowhere close to claiming I can give financial advice. I am happy to shoot the breeze and discuss how I see it and how you see it, based on our experiences – but I think I’d be in trouble if I claimed to be any kind of financial adviser. I’m very keen to talk about this stuff with folk though.
isn’t this assuming that Rachel’s rent stays the same? for 25 years?
It’s a good question. Thanks for commenting and contributing to the discussion.
I’d say, no, not really. I did say up front, there are many variables to take into consideration that affect both sides of the argument, but saying ‘Rachel’s rent might go up’ is only like saying ‘interest rates might go up’. In all likelihood, over 25 years, both will happen, in both directions, several times. You just can’t know.
What I do know is this: I’d rather be in a position where I’m light on my feet, mobile and simply negotiating rent than in a position where I am stuck heavily invested in a mortgage when interest rates go up.