Author Topic: London Property Dilemma  (Read 4344 times)

MacBury

  • 5 O'Clock Shadow
  • *
  • Posts: 40
London Property Dilemma
« on: August 24, 2014, 02:54:56 AM »
I live in London and was fortunate enough to purchase a house close to town after the 2008 crash. Prices have risen and I now feel over invested in housing as a share of my portfolio.

Problem is I don't own a car and my bike to work is 15minutes and love living close to town and London in general.

I'm 37 and our household costs 100k pa to run. Two children who I will be sending to our local state school next year (save 20k) and retiring our nanny (save 27k).

I think I could reasonably get our expenses down to approx 60k pa.

By rule of 25 I would need around 1500k to maintain current lifestyle. Assuming freehold house.

I have around 1700k of equity in house and another 600k pension savings roughly 2300k.

Not really sure what to do. Very exposed to London crash. Unfortunately love living in London but if sold up could be close to retirement.

Any advice?




marty998

  • Walrus Stache
  • *******
  • Posts: 7227
  • Location: Sydney, Oz
Re: London Property Dilemma
« Reply #1 on: August 24, 2014, 03:58:27 AM »
eeek. Quadruplicate threads!!!


Easy way to get your post count up lol

MacBury

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Re: London Property Dilemma
« Reply #2 on: August 24, 2014, 05:03:35 AM »
Apologies for duplicates some technical error with the Tapatalk app

plank

  • 5 O'Clock Shadow
  • *
  • Posts: 71
Re: London Property Dilemma
« Reply #3 on: August 24, 2014, 05:57:22 AM »
How much do you owe on the house?

In general, only you can decide if the cost in years of work is worth living in the location you like vs. moving somewhere cheaper and being FI.

MacBury

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Re: London Property Dilemma
« Reply #4 on: August 24, 2014, 06:49:21 AM »
Owe 350k on house...

MacBury

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Re: London Property Dilemma
« Reply #5 on: August 24, 2014, 07:56:52 AM »
OK I've had a few thoughts...

Let's say 50k pa is the cost running household EXCLUDING the implied cost of living in your home rental or mortgage costs.

50k x 25 (4% rule) = 1250k

This is the pot you need to retire with nowhere to live.

Now if take the net equity in your home plus all savings and investments net of debt

This case 2250k

Difference = 2250k - 1250k = 1000k

This is effectively the amount of house you can afford if you wish to retire and NEVER work again.

Or if you wish to rent can think about like this:

1000k/25 (4%rule again) = 40k per annum (3300 per month) rental expense.

Simple as that.

plank

  • 5 O'Clock Shadow
  • *
  • Posts: 71
Re: London Property Dilemma
« Reply #6 on: August 24, 2014, 08:18:04 AM »
How much do you take home/save each month?

How much longer would you have to work to pay off your house and what would your annual expenses be at that point?  Do you want to live forever in the house you are in currently?  What does your family think?

MacBury

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Re: London Property Dilemma
« Reply #7 on: August 24, 2014, 10:02:42 AM »
Paying off the house is the wrong way to think about.

Better way I think is to reverse engineer how much house you could afford if you were to cash everything up (including existing family home) and retire.

I have done that in the above example.

plank

  • 5 O'Clock Shadow
  • *
  • Posts: 71
Re: London Property Dilemma
« Reply #8 on: August 24, 2014, 10:17:25 AM »
I am failing to understand your dilemma.  I thought you were asking if you should sell the house in the location you like and retire somewhere cheaper or stay where you are and keep working.  It seems like you could do that based on the information you provided.

What dilemma are you facing?  The only way to diversify your assets away from your home is to sell your house or refinance your mortgage to tap the principal and use the proceeds to invest.  I would recommend against the latter.

What exactly are you asking about?

daverobev

  • Magnum Stache
  • ******
  • Posts: 3555
  • Location: France
Re: London Property Dilemma
« Reply #9 on: August 24, 2014, 10:33:55 AM »
London is stupidly expensive.

Sell the house, retire in a decent city (I don't know, Manchester, Bath, Bristol, Newcastle, or overseas).

London is not the center of the universe. I accept it is certainly a world city. But what does that mean? Noise and CCTV.

You're rich beyond the wildest dreams of most people. If you want to retire, do it! There is nothing to stop you.

theonethatgotaway

  • Guest
Re: London Property Dilemma
« Reply #10 on: August 24, 2014, 10:43:28 AM »
Oh London. LOVE London. My MIL just sold her house she bought for 50k  in 1986 for 700k. She is retiring on that.

So you don't want to move, you love your house you love your city you have a nice pension you are young. Do you not like your job? Do you want to raise your kids elsewhere?

If the answers to the last two questions are yes, then sell and move. You can do it this year or next or whenever.

It looks like from the above calculations you could move to another part of London easily and buy a beautiful house for 1 mm and still have access to the city and not work the day job anymore.

Haha I want your life!

Best of luck OP.


former player

  • Walrus Stache
  • *******
  • Posts: 6369
  • Location: Avalon
Re: London Property Dilemma
« Reply #11 on: August 24, 2014, 10:57:23 AM »
One of the reasons you love living in London is because you have that house.  If you lived in the suburbs with a long train/tube commute you wouldn't love it as much.  Plus it's apparently near a state school you want to send your kids to.  (You are apparently currently paying both for private schools and a nanny?)  Yes, you have a lot of exposure to a potential housing crash, but the non-financials seem worth it as long as you are still working in London.  With family going to local schools, your other options are to stay in the same area but either downsize or buy a do-er upper and put in the sweat equity.

Will there be a housing crash in London? High-end in London is a global market, not a UK one, so if there is a crash in London there will have been a global crash, so probably have been nowhere better to put your money in any case.  That's my view, anyway.

If you want to retire and stay in the same house, you need to pay off the mortgage (350K) plus have 25 times your 60K annual living expenses when the house is free of mortgage.  You currently have only(!) 600K in pension assets, so total additional savings required would be 1.25M.  From next year you have 47K per year savings on the kids, plus whatever you are currently saving.  How long will it take you to save that 1.25M, and is it worth it? 

If you want to retire and move, MacBury's done the maths.

So, question is, not what your house is worth or what the London property market is doing, buy what do you really want to do with your life?

MacBury

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Re: London Property Dilemma
« Reply #12 on: August 24, 2014, 12:39:36 PM »
Thoughtful advice. Thank you all...this situation has snuck up on me owing to what is probably a massive property bubble.

I came to London 10 years ago with no money and a student loan but worked and saved hard. My parents are poor and face difficult retirement.

I don't want to make the mistakes they made and have found this blog an inspiration.

Made me realise we consume way too much and lead completely unsustainable lifestyles in the West. I fear my children will pay the true environmental cost.

alsoknownasDean

  • Handlebar Stache
  • *****
  • Posts: 2400
  • Age: 36
  • Location: Melbourne, Australia
Re: London Property Dilemma
« Reply #13 on: August 24, 2014, 04:32:46 PM »
If you're happy there and don't want to move (and accept that staying there means FI is much later), then stay. It's only worth money once it's sold.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 15268
  • Age: 63
  • Location: NorCal
Re: London Property Dilemma
« Reply #14 on: August 24, 2014, 06:05:18 PM »
Not clear on exactly what the dilemma is here, so I'll just spout off with an opinion, which I hope is helpful. If you love London, then suck the marrow out of it until you've had your fill. Then if you choose to move away later you won't feel like you've missed anything.
Real Estate will always have ups and downs, but history will probably show that 2008 was probably the biggest downturn you're likely to ever see. Good for you for jumping on the opportunity. Now try to stop worrying about the next crash. Long term, real estate always goes up. Just ask your granny what her first house cost.

theonethatgotaway

  • Guest
Re: London Property Dilemma
« Reply #15 on: August 24, 2014, 09:49:12 PM »
It took you ten years to amass your wealth in central London? Can I ask what exactly you do as a profession?

Children tend to do what the parents do. If you want them to lead a more green, self sufficient life, it starts with you! Good news is that you have the means to make the changes.

Best!

MacBury

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Re: London Property Dilemma
« Reply #16 on: August 25, 2014, 01:13:18 AM »
@Theonethatgotaway

I basically saved around 60% of my income for sizable deposit.

Brought close to bottom of market when people were very fearful and banks had stopped lending for high LTV.

Also had generous employer pension scheme which I maxed out.

Cooked a lot at home and biked everywhere. London fantastic cycling city. Much smaller than people imagine.

Transport costs effectively zero and food very very cheap in London if you use the markets.




theonethatgotaway

  • Guest
Re: London Property Dilemma
« Reply #17 on: August 25, 2014, 10:53:26 AM »
I was there last year for 8 months. I was surprised just how cheap food was, and the quality is excellent.

Thanks for the reply! What are your plans moving forward?