An estate agent I know bought a fixer upper recently in the UK. The house was in terrible shape with exposed live wires and no inside working bathroom. The previous resident was an aged widower who continued to live there for 10 years after his wife passed away and refused entry to anyone — including his children. But despite the state of the house, the estate agent believes he will make a great profit when it comes time to sell. When he told me about it — and how he had managed to pick it up for a ‘good price’ — the first thought that occurred is: is this a conflict of interest? By this I mean being in a job that allows privileged access to information, or investments, before it’s known to the public, and acting upon it. Putting that pesky ethical issue aside, my next thought was: if you plan on your home being your biggest investment, then it would help to be an estate agent at some point in life. I had similar thoughts a couple of years ago, when I found out a different agent was the proud owner of a handful of buy-to-let properties. We’ve been conditioned to think of a home as one of, if not the biggest investment we’re likely to make. If this is your belief, then becoming an estate agent could be a savvy move — if not for the astute purchases, but for the insight it’ll expose you to within the sector: getting to know which area and what makes a ‘good investment’. What the buy-to-let estate agent did is a stroke of genius: getting to know every market movement before the general public, and having the cash to put down when he knew he could bag a great deal. But wait a minute. This thinking is based on a house being a good investment. Is it? The first thing to consider is whether it is just a house or your home. If it’s somewhere to let out as an investment, then you need to work out the numbers to see if it makes sense. If it is your home, you need to again figure out the finances. This is an important point to ponder, as home equity is usually the owner’s largest asset — outweighing any other investable assets for most. The downside is that a house is not a liquid asset — you can’t cash it in when you want (or need) to. It also ties up a huge chunk of your money that ‘could’ be making great returns elsewhere. But: homeowners tend to grow wealth faster than renters. This is what a 2013 study released by Harvard University’s Joint Center for Housing Studies shared. Having delved into the effects of the credit crunch on this issue, the findings state that the golden rule of accumulating wealth through home ownership hinges on it being a long-term investment. There’s the argument that mortgage payments are in lieu of rent — after all, we all need a place to live. Many consider mortgage payments, when capital is being paid down, as ‘forced saving’ — assuming the value of the property increases and outstrips inflation. The key for gaining from renting a home — assuming monthly outgoings are cheaper than paying down a mortgage — is to invest the difference. But that’s the point — it is optional, and so most people don’t do it. They spend the money instead. The truth is, home ownership is a complicated issue, with many variables out of our control — such as death, divorce, political and financial fallout and more. If you do some research around whether it’s a good investment, headlines such as “Home owners gain X trillion as house values jump” or “Why home owners are richer than renters” scream conflicting information. The bottom line is this: if you can afford to live the dream and buy your home, then go for it. If you want to increase your chance of making money from it too, then plan on keeping it for many years. If you don’t want to, or cannot afford to buy, then make sure you save and invest money each month. Investing what you save on not buying (fees and ongoing costs) is the reason some say renting is better, at least in financial terms. Back to the idea of a clever career choice — consider becoming an estate agent at some point in life. The lifetime opportunities are worth more than the salary — provided you can make that down payment. <em>Nima Abu Wardeh is a broadcast journalist, columnist and blogger. Share her journey on finding-nima.com</em>
