Should I Buy a House, or Invest Elsewhere?

[JoeDavola]

Hi everyone, first post here - will try and keep it short and sweet - looking forward to hearing your opinions!

- 33 years old, single and no children
- I have a secure, enjoyable job which I intend to stay in for the foreseeable - take home pay after tax and pension contributions is approx £2200 a month
- I don't have a car and have no intention of getting one, so I like living reasonably close to my work - I just walk or cycle most places - no commute costs
- I am renting a great apartment at the moment for £500 a month, with minor bills on top of that (gas/electricity) - living is cheap, I have plenty of money left at the end of the month...
- ..and as a result I have saved £160,000 sitting in my bank doing virtually nothing (as we all know, savings rates are dreadful)

...however, I have reached a point in my life where I don't think I want to live right in the middle of the city any more. There is an area about a mile from work where I think I would really enjoy living - I could cycle/walk to work via the most beautiful parts of the city and I'd be living beside some great parks/water so I could get a dog or take a kayak out on the water during the weekends/holidays. It would be as close to a perfect life as one could imagine in this city.

There is a house for sale that I like the look of. It's £220,000 with £130 a month of council tax, or could be rented for £800 a month all in.

However if something can be rented for £800 all in, or bought for £220,000 with £130 a month tax and all the costs of upkeep....is it really overpriced?

Would I be a fool to buy a house? I think houses are somewhat overpriced - an asset which takes money to maintain, is taxed, and whose value is directly influenced by the availability of cheap credit - i.e. if interest rates went up prices would surely collapse? But then again I have my doubts that interest rates will ever go up.

Is there something wiser I could do with this £160K and then use the additional income from it to pay for the rent the house?

Look forward to hearing what the posters here have to say - all opinions are appreciated!

[spooky105]

I discourage people from thinking about the home they live in as an investment. Yes, money can be made. But my impression has been that more often than not, sloppy math makes home ownership appear more favorable that it really is.

I would instead look at your situation this way:

1) What is your cost to rent + utilities (£800)?
2) What would be the cost of a mortgage to buy + council tax + utilities + estimated maintenance?
3) What is your expected rate of return if you invested the funds?

I would speculate that the cost to rent is less than the total cost to buy (don't forget transaction fees for the purchase/sale) and your expected rate of return is more than the interest rate of a mortgage. So it would make the most sense to invest the money and rent. You'll earn a higher rate of return on your capital than if it was tied up as equity in your house. This also gives you the added flexibility to make a change down the road if other opportunities present themselves (job or living location).