About people benefitting from property price rises?

[boschy]

I have been thinking - on the back of the benefits cap thread, so please forgive if this is not the done thing!

To me, it seems that there is a difference between property speculation - ie buying cheap properties, doing a quick job and selling them on or renting them out at as high a rate as possible in order to rake in the dosh - and DIY?

I'll explain - we are on our 3rd property. Bought a flat cheap, sold it 7 years later for 3 times the purchase price. Bought a house cheap, sold it 8 years later for 3 times the purchase price. (Both times I had a dream that the eventual price we got would be that amount iyswim!) Location - S London - and the times - the 90s - undoubtedly helped in both those cases.

HOWEVER in all three cases, we lived in conditions that I think many would find unacceptable - total rewire, reroofing, replastering, new kitchen/bathroom, damp, no floorboards downstairs in the 2nd house for 3 years, building dust and dirt and debris etc etc. We did all the work ourselves, or knew people who would help out with mates rates when we really couldnt do the work. Both the first 2 properties were finished just a couple of months before we sold. Been in the current house 13 years, brought up 2 DC in 'challenging' conditions - our house now is still a major challenge and years to go before it is what most would call 'acceptable', let alone what estate agents would call 'desirable'.

So we have benefitted along the way from rising property markets - but also from sheer bloody hard work. When we sell this house - should we profit from the effort we have put in, and the market changes as well? if not, why not? and if just from the effort, how would you quantify that? and who would be the arbitrator?

Well, many are still buying houses such as the ones you describe (I know we are) but will never make 3 times the value in unearned income. My parents' house is worth nearly half a million more than they bought it for 12 years ago...is that 'fair'?

Meant to add, it is all about timing. If I were ten years older, I would be laughing money-wise if I had made decisions and bought at the same time scale. I mean, if I were now 41 instead of 31, but had still bought first place at 27.

of course you should benefit from the increased price. okay not everyone manages to do the same, but its your house and you chose to buy at that time and sell at that time and so you get the benefit from it - we are not a communist country so what other suggestion could their be! life is not fair, thats just the way it is. lucky for you on the house income, i would just be happy about it and if people say unfair then ignore them. and personally no i would not be happy to live in a building site type situation while improving houses so as far as im concerned if you do that and make money out of it then good for you. if people are jealous about it that is quite petty

Yes I totally agree about the age point - we were 21 when we bought the first flat, now 51. (not the royal 'we', me and DH are about the same age!!)

generally I despair about how our (generic) children are going to house themselves in the future - no council housing, no affordable rents, no mortgages available even supposing there are jobs. and DH's and my efforts will probably come to no avail - except that we like our house - because when we come to sell what we need to downsize too will cost a bleedin' fortune which means nothing spare to give our DC a leg up.

I'm not jealous in the slightest, as I will benefit from the rise in my parents' house value haha and we can afford to buy a house ourselves anyway. But it is unearned income. Obviously that will grate on some as regardless of effort put in that opportunity isn't open to people any more as the crazy house price bubble has burst, thank god.

I'm not entirely sure that it is unearned income in a way... because we put the work in each and every time; other people went on holiday, we bought really exciting stuff like sockets and plasters and wires, and we plastered walls or laid floors or whatever. And we did - and are still doing - that for YEARS. I have never lived in a finished house for longer than 3 months.

And in fact, when we cash in our equity and downsize with our zimmer frames, we'll probably have enough left to buy ourselves the 1 bed flat we started with, assuming house prices continue to rise and we want to stay in the same area.

surely there's got to be a better way with housing?

How is it unearned???

I agree!! DH and I bought our current property in the early 90's....it was so bad the council deemed it uninhabitable - we lived in one room for 5 months whilst DH did all the renovations after work and on weekends - we had no hot water, no heating and I used to sit in a cold bath for a wash!

The house we moved from we kept and it is rented out - not so long ago we spend a good few thousand pounds on a refurb,......we have worked bloody hard on both our properties and yes, we deserve for the prices to be raised.

However, timing is the key - I doubt we would be able to do that now with things the way they are although DH is hoping the way forward for him is to do refurbs as he is a builder and hates working for the public.

I mean, do you think the work you did was worth the 3 times price increase you got on each property? My parents are the first to say it is unearned, which is where I got the phrase.

I mean, many people now do the same level of work and won't experience the same increase, because it was a bubble that had to burst. So I think it hardly surprising that those who are younger, who do not have the same opportunity to make any money through their property bar perhaps getting back the cost of renovations are a little . If it were a choice, and 'my' generation were actively choosing properties that required no work whatsoever over properties they could work on and get the same level of return then it would be a fair point.

Fwiw, I too grew up on a building site and remember each house fondly, luckily as dd will have the same experience! But their last house has required very little work, it was just the right timing, and even with the price crash it is still worth nearly half a mill more than they paid. Every time they nag me about 'my' generation and how often we move, my sister points out that we could afford to buy their big place for what they paid for it in 2000, just not what they want for it in 2012!

I'm definitely not jealous, I don't mean my responses to sound that way as the situation is no-ones fault, but it is one of those things and it would be graceful to accept that luck has paid a part.

If it is a gain caused by asset price inflation, then it is unearned.

For example, a terraced house in Bog Street was worth £100,000 ten years ago and is now worth £300,000. Not because it has been tarted up but because prices have changed. That's unearned.

In the same way that if you bought it five years ago for £500,000 and it is now worth £300,000, not because it has deteriorated but because prices have changed.

Of course, you will find price speculators who thought they were very clever when they got the advantage of asset price inflation, and think the world is a cruel place when they suffer the loss of asset price deflation. If you buy anything as an investment hoping for a price rise, then you carry a risk, whether it's gold bars, commodity futures or houses.

It's only worth what the banks will lend.

So the bankers have done well out of house price inflation as have the government in stamp duty but 99% of those who even think they've made money haven't because they'll end up giving it and more to their children as deposits unless there is a massive correction in prices v's wages.

People see it as unearned because they watched the property programs a couple of years ago. People were putting lots of work in and making huge gains but in a huge number of cases the voice over at the end stated they would have made more profit if they'd done nothing to the house and just waited a year to resell. The gains they were making were because of house price rises not the renovations they'd put in. That doesn't mean to say they didn't worth hard, just that the gains they made weren't as a result of that hard work.

Someone could buy a house today, spend a long time renovating and gain very little in house value. It doesn't mean they haven't worked hard or made as many sacrifices as you did doing the same thing.

I don't get it. It's called the housing market - why would anyone expect it to be fair? Markets don't have intrinsic fairness

What you're talking about are investments, they're 'earned' by taking risks.

Whether it's fair that some people have large amounts of capital to invest is a different discussion. Yes, our parents made a lot of money on the housing market (more than we could hope to), but I can't see how that is an injustice.

I am firmly of the believe that it isn't healthy to look at others and resent what they have, so I don't. I am very lucky, financially comfortable and secure etc. But it is a little galling to be told that if our properties don't increase by three times their value it is because we didn't work hard enough on them, when the true reason for the increase of property value was the frankly bonkers price increases that have screwed the following generations up and down the country. But maybe that wasn't how you meant your OP.

If you're talking about landlords charging market rents, I agree that the stock of social housing shouldn't have all been turned over to the market in the first place. I don't know if it's the duty of the people who bought them (often 2nd and 3rd generation now) to solve this problem.

OP, you and I have both been fortunate (my story reads very similar to yours) to have bought and sold throughout the '90's.
Renovations and decoration = hard work but TBH you would have still made a big fat profit if you had done nothing.
Unfortunately, nowadays you can throw £1000s at a house and not benefit financially when you sell. YABU to expect it.

I have done this about 12 times. It has been a good way to earn a living but it has definitely slowed in the last few years. Now that the rising market is virtually zero you do need to produce a bit more than your bog standard magnolia box to profit. I have always gone over and above the standard refurb and that has paid off.

I don't have any problem with people who have made good decisions on property purchase and/or doing a place up making a profit and either spending it or living somewhere better than they would otherwise afford to.

I do however think that it is rather different when you think of the end of life scenario as the profit is not taxed as it grows. In those circumstances Inheritance tax and paying for care in a care home or at home seems reasonable under the circumstances.

BTW, I agree it is unearned. People who pat themselves on the back because they happened to be in the market in the '90's ABU.
It was a freakish time (!) and I am very fortunate to have bought and sold then but it wasn't hard work that put me there.

My parents have made a small fortune through their houses, as did dh:s parents. I don't think that is unfair, as it isn't their 'fault', it was the market. However they were taking no bigger risk than we are in buying a property, in fact less so because they bought a 5 bed family home over looking the sea for 2.5x my dad's salary. That house sold for nearly 8 times what they bought it for. The average salary multiple now is above that, meaning more risk for less reward now, really.

This has priced many, many people out of buying now.

Sorry, but over the timescales you are talking about the money you made from your properties would have been weighted much more towards the rise in the market than from any work you carried out.

I bought my house 5 years ago, I'd be lucky to sell it for half the price now, not because I've trashed the place but because I didn't have access to a crystal ball.

higgle- I don't have any problem with people who have made good decisions on property in the '90's a lot of it just happened, it wasn't all about good decisions.

Yes, my parents didn't make a savvy decision, they just bought a house when they needed one.

It does also depend what you do with it. I bought an old terrace november 2010 and spent 30k renovating it and it rose by about 100k by July 2011. That was not the rising market it was the finished product was desirable. You have to be prepared to do a lot though to get there and there are bigger rises in certain areas.

boschy so you bought H1. did it up. sold it. made money from work + house price increase. then bought H2.

but H2 had gone up when H1 was going up. by more if it was more expensive. so you only benefited from your work & any canny investment decisons. the houseprice increase doesnt benefit anyone buying a home to live in that is larger than their previous purchase.

of course you have equity but you still need some where to live. people who dont own a property suffer when house prices go up but it doesnt follow that home owners benefit. property investors benefit.