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?

also children of property owners benefit when they 'dont need anywhere to live anymore'

i bought my first house at 19

we have worked bloody hard, day in day out, through redundancy many times to keep the roof over our heads

why, now that we have paid for it, shouldnt we make a blimmin profit or give our kids the proceeds. We deserve it.

Nobody is saying you shouldn't. But some are saying they would like the same opportunity, that's all.

I don't think property is fundamentally different from any other asset. If you bought a painting at a boot sale for a tenner, spent £100 cleaning it up, looked after it and got told on Antiques Roadshow it was worth £10,000 people would be clapping you on the back congratulating you on your good luck. Buy a house for £100k, spend 20 years paying a small fortune in mortgage interest, maintenance and council taxes, and then sell it on for £300,000... same thing.

I would have loved to be in the same position as you OP which is why it makes me a bit jealous. I know I wont be a homeowner in a long time unless prices come down, this is despite us both working full time and being university educated.

We don't have parents to lend us a deposit and were too young to be able to have bought before the boom and crash.

we never did it to speculate btw, it was just for the roof over our head to fit what we needed at the time. Couldnt afford much to start with, then could afford a bit more with increase in H1 value, and increased salaries over that period which led to H2.

But what it does say to me that when it comes time for us to head into the sunset with our zimmer frames, we wont actually be that much better off than if we'd just sat there and let the market do the work for us (at certain times).

There is also risk and hard graft involved. I think everyone is entitled to their profit as property goes up and down and you can also lose. I think prices are about to fall fwiw and do think houses as investments in the short term is no longer viable. I have several friends atm with renovations they can't shift and they are dropping prices by the week.

Must add, I'm sure you've worked hard and deserve a big profit on your house. But us renting does not mean we've been lazy sitting on the sofa watching Jeremy Kyle.

i dont need an antique painting. i do need somewhere to live.

painting = investment
home = home

sell the painting, spend the profits on whatever you like.
sell the home ..... and buy.....another home...which has also increased in price. where has the 'profit' gone now?

spare home = investment
home = home unless you like 365day camping!

I don't see the connection between renting and watching jeremy kyle sorry.

Yes, nobody 'needs' a painting. Everyone needs somewhere to live.

Not quite as unearned as money made from speculating on the collapse of an entire currency - thereby bringing that currency down.

For example.

noddy OP was saying she deserves the profit beacuse she's worked hard decorating the house, as inn people not doing up houses don't work hard.

Renting and BTL needs to be much more regulated so that renting is a good secure and affordable option. House prices are way too high and due a fall. I am and always have been more in favour of price falls in terms of fairness. I can still make a living through the design there is no need for this ridiculous system we have,interest rates are too low for starters!

OP we wont actually be that much better off than if we'd just sat there and let the market do the work for us (at certain times).
Yes, that's true. We are in the same position. But look at it this way, nowadays there are people who bought 4/5 years ago, have ploughed in ££ to renovate, everything you have done and sell at a loss.
We're still v. fortunate.

In your situation, I see it as part earned and part unearned.

So for example if you bought it at 100k, spent 50k doing it up and sold it 3 years later for 400k, there is a total profit of 250k. However, you have to ask yourself what it would have been worth in 3 years if you had bought it and spent absolutely nothing on it.

If it would still have been worth 100k, then all 250k of the profit is earned. If it would be worth 300k, then only 50k of the profit is earned - the rest is down to general house price inflation.

And of course the unearned bit of the profit cant easily be realised. i.e if you want to do the same thing again and sell for 400k, to buy a similar house to do up you will need to reinvest 300k (and leave aside 50k for the work), so really only the "earned" 50k is realised. Te remaining profit is still there, it is just "equity" in the property, and is not relaised until you ultiamtely leave the property market (or move to a muc cheaper area).

but if you sell at a loss, then you buy a new house at a cheaper price?

the problem occurs when you cannot afford to buy the next house.

when you buy a proerty you are 'locking into' a price. when you change that house for another, the original capital is still locked in at your original price.

you only make/lose money when you change to a different asset or cash.

The amount you've actually 'earned' (ie worked for) from each property you've done up and sold, is the difference between an unimproved and an improved house at the time of sale, not the overall amount the property has increased in value since you bought it

That is true. I think I have only really made a marked amount on the rising market twice in 2005 and 2007.

you only make/lose money when you change to a different type of asset or cash. (ignoring DIY as you have contributed labour)

in 2000 you buy a house for 100k
in 2010 you sell it for 200k

the house you want to buy cost 150k in 2000. it now costs 300k.

how have you profited from the rising market if you want to buy a larger house to live in? you were just 50k short. Now you are 100k short. because you have some equity you feel richer. but it is just a feeling.....

I'm thinking that this is about the fact that some people would like the same opportunity to make money on a rising housing market ?

Hindsight is a wonderful thing. At the time the people who bought property were taking a risk that they presumably calculated to be small but they still bore the risk of a sudden downturn in prices leaving them with an asset worth less than they paid for it and a mortgage thereon to boot.

No-one could be certain that prices would keep on rising but because they did, some people think the opportunity to make a profit should have been available to them too ?

There are other investment opportunities around all over the place but do remember the value of your investment (be it property or otherwise) can go down as well as up and there is no government backed compensation scheme for falls in the market of whatever it is you invest in.

30 years ago a family with a combined income of mine and my h's would have comfortably afforded to send our children to a good private school, these days school fees have risen so much its stilljust about do-able but just not sensible to stretch ourselves that much financially. Is this fair ? Well, I don't feel I have any right to moan about it no.

you only make money on a rising market if you buy an extra house or buy a large house with a view to downsizing. then you are taking more of a risk than everyone else & this is why you profit.

if you dont by a house, you dont take the risk and if prices rise you lose, if they fall you win, but you have paid rent.

i would suggest that one of the reasons the country is screwed financially because of the general belief that rising house prices makes the average home buyer richer.

You do need to buy cheaper next time to realise any of the money. That is how you can make a good living from it But as a home you make nothing until you downsize. Some people re mortgage but that is getting more and more risky as house prices are volatile.

moneybunny NO WAY was I implying that renters are JK watchers who dont do the hard graft!! And I'm really sorry if that was the way it came across - was not meant to. I appreciate we were lucky with timing, but we put the graft in as well - serious work with each property which we did not do out of 'spare cash' but from earned income. we stretched ourselves each time, which is why each one took so long...

but anyway: I see no way for younger people, or my (teenage) children to have the same opportunity at the moment. or indeed for my teenage DC to benefit financially from our work in the future. depressing.

I can't see why gains on a property aren't subject to capital gains tax? I know if you own multiple properties you do, but why shouldn't people pay tax on huge dollops of unearned income. Which in many cases just landed in their lap due to when the bought.