Gold v Cold

Talking with a friend the other day about a possible future with his new partner, we were discussing property ownership, renting and investing. Currently, they both have places and are looking to move in together, but are unsure about whether it will be into new place for them both, or the house that my friend already has. Also, the partner wants to sell their place, rather than rent it out.

It is an interesting scenario, because while there are lot so financial implications, much of the current thinking is driven by emotional conditions instead. For instance, it is common in Finland that a person doesn't want to move into the home of a new partner that they shared with an ex, as they feel it isn't "their" home, and they are an intruder of some kind. There are ways to mitigate the feeling, like a bit of surface renovation, but even that might not be enough. For the record, I don't think men have quite the same issue in Finland than women.

The other emotional aspect is the selling of the apartment, rather than the renting out, as essentially they will want to buy a rental apartment anyway. However, they have their own history in that place, and they want to be rid of it, which is why they plan to sell. This is obviously an emotional decision too, but it is interesting to note how even if they will never have to set foot in it again, even having it on the books carries the baggage.

Financially though, it would be better for them to let go of their emotional pasts, and think of their economic wellbeing in the future instead, because this will also likely strengthen their relationship also. It costs to sell, it costs to buy, it costs to move, it costs to redecorate - everything costs. Ultimately, it would be better for them financially to make as few transactions as possible - where for instance, they move into the house together, and immediately start renting out the second home. This has a couple benefits.

Firstly, it reduces the transfer costs significantly if they were to buy an investment property, but it also means that they would be able to start bringing in income immediately from a renter. Where it is located means that the rent will cover the remaining monthly mortgage repayments, and likely leave them with a bit extra in their pocket. This is another thing to consider.

Currently, they are both living as single parents, but one has an adult child who will soon move out for university. This means that they can also save costs in consolidating lives and splitting expenses. This would put an extra bit of cash into their pockets monthly, which would soon add up to a decent deposit on another investment rental property. It would be quite possible for them in two to three years from now, having two rental properties (one shared) that are paying themselves off, and holding or appreciating slightly in value, while also using any extra to pay down the mortgage on the home faster.

Assuming they are around 20 years from retirement, it would mean in that time they would own their house and two rentals outright. This means that rather than the rentals paying themselves off with a little left over, it would all be gained (taxed) income that they can use to supplement their retirement. And, because they have also paid their house, they will also be looking at low overheads, meaning that their retirement is looking pretty healthy. This is something that most people are looking to be able to accomplish, where they have independent income streams from assets, and no debt. And, this is a conservative and safe approach, as it is dealing with property, which is pretty steady and since in a growing area, should also have renters available.

As said in the first line, we were discussing ownership. But, we are living in a world where people are increasingly looking to rent instead of owning, to spend instead of save, because "who knows what is going to happen" in the future. Well, no one knows, but thousands of years of history should be a pretty good indicator that ownership is likely going to produce better results than reliance on others. This is personal ownership, or state ownership. State ownership generally leads to harm to the people the state is meant to support.

In my view, if we become reliant as a renter for our lives, we are eventually going to find ourselves out in the cold, as the system is set up to keep profiteering, to keep growing. And, if we aren't able to grow ourselves, we are going to be drained, either through consumption or inflation.

And what you will notice that what is getting leveraged to be renters, and to say "don't know what the future holds" - are our emotions. We might like to think that we are making the decisions for our best, but they are still rationalised by our emotional states, which are driven by our emotional experiences - which can be pretty irrational.

We shouldn't be in relationships for financial reasons perhaps, but we also should discount the effect financial conditions have on relationships. There are many potential stressors on a relationship, and home economics is one of the largest ones. And, because most of us have difficult relationships with money itself, it is one of the issues that can push us into behaving poorly, erratically, and emotionally - which impacts even more on our interpersonal relationships.

Of course, I am not the one that has to be in the relationship, nor am I in the same position financially as them so I couldn't taker advantage of similar. However, I think that being able to talk through these types of scenarios is useful for my friend who might not consider them in the same way, and also for me, because it helps me double-down on my own thoughts and activities around ownership.

There is a reason people buy gold that they can hold in their hands, instead of renting it.
Renters get left out in the cold.

Taraz
[ Gen1: Hive ]