Thread by @funkomi

Okay sooo I’m going to run some numbers / breakdown on this (mortgaged) house vs REIT something. I’m not letting it go.

https://twitter.com/macrodesiac_/status/1188783375529717760

Lets go:

So you + lil family need somewhere to live. Your options are:

(1) Buy a £500k 3-bed home with a £50k deposit and a 30 year mortgage at 1.5% interest. The monthly payments are £750

(2) Rent that same 3-bed home. You get to keep your £50k and the monthly rent is £1,750

You decide that a mortgage is the ghetto and you want “LiQuIdiTy”. You put your £50k straight into a REIT.

REIT = real estate investment trust. They are funds generating income from residential, commercial and healthcare real estate. Both rental income, appreciation & sometimes even mortgage receipts.

You start ferociously studying the best REIT providers. Its looking good!

But how much does this REIT need to return to cover my rent cost?

Thats £1000 a month (£1750 - £750) or £12,000 a year.

£12,000 / £50,000 = 24%

So I need to be getting a 24% annual return on my REIT investment just to be in the same position.

The BEST performing REITs return about 10-12% P.A. This is really good, and considering how low risk they are -I’m all for REIT investment. But NOT at the expense of your childs bed, please.

Other things to note:
REITs give these kind of returns as *long term* investments. Therefore realistically, liquidity isn’t going to be best (option is still there though).

Owning your home offers stability for you and your family.

A REIT + Rent strategy is less stable.

Your house price could appreciate. You could remortgage and then use the proceeds to buy REITs meanwhile, your home is still there and over your head. But forget that.

Lets go to the (very cynical) dire times when you have lost everything, your job, your sense of self worth and even your ability to reason.

(Because who doesn’t stress test their life to the most extreme scenario??)

If you owned your house you could sell it and hopefully sort yourself out. If the house has gone down in value its pique because you are still going to owe all that money. You will probably need to file for bankruptcy. Game over (because homeowners dont have any savings).

A quick note on repossession here. You would likely have about a year to sort yourself out. Most lenders WILL NOT even contact you until you have missed 3 payments (3 months) then they’ll send letters asking you to correct the arrears, giving between 15 & 28 days.

THEN they’ll need to commence proceedings. The court will give a hearing date, usually months away. The judge will hear you both and can give a number of orders. A possession order will be given if there is no hope for you to pay this debt.

If you were renting, you’ve lost everything. But you still have your cash in your REIT (this investment only ever goes up - *detect sarcasm*) so you get kicked out (in 2 months) but you can change your kids schools, downsize and find somewhere cheaper to rent. #Liquidity

Dont let investment twitter and their graphs make you feel like an idiot for securing a roof over your head. You can still access the REIT market AND live in a mortgaged home.

By the way: If you want to start buying REITs you can do so on Freetrade:

freetrade.io/freeshare/?cod… when you sign up, we both get a free mystery share!

(Your investment can go up OR down!)

Dont forget to give yourself a huge pat on the back and buy a massive bottle of champagne to celebrate buying your first home. Its a great achievement 🎉.
PLUS you lot doing it in your 20s will probably pay off your first home way before retirement. I respect it. Keep pushing x