Ajay Ahuja Blog on The Double Dip

I am sure you have heard of the double dip they keep on going on about.  This is where property prices are going to fall back down again after the 9 month surge.

GREAT.

If you are someone trying to sell your property please believe this and sell your property now before it is too late.  Prices are only going to plummet and now is your last chance.  If you do not sell you are likely to die very very poor.

This is the sort of scare mongering that can really work in our favour.  For those fortunate people who were able to buy a property in the past who are now wanting to get rid for whatever reason and rent then now, if everything is meant to be believed, is the best time.

So is it a good time to sell?  Well not really.  As long as you have borrowed significantly (greater than 75% of the purchase price) then it is never a good time to sell.  I am making an assumption that you are someone who is aspiring upwards rather than scaling back and lowering your risk.  I think that is a safe assumption otherwise you would not be reading this email.

The reason being is that a property will always gain more in equity than you spend on interest if rates stay at their long term average.  So take a £100k property that costs around £300 per month to hold.  Over 25 years you will pay:

300 months x £300 = £90,000

This assumes a long term rate of 4.8% on a £75,000 loan.  Now compare this to what the property will be worth in 10 years time.  If we take the long term growth rate of 2.9% and compound it your £100k property will be worth:

1.029^25 = 2.04 x £100,000 = £204,000.

So you have gained £104,000 in equity in 25 years and paid out £90,000 in interest.  So effectively a £14,000 profit.  Please note I have not included any rent received over the 25 years.  Not one penny.  So even if it sat empty your long term wealth would still grow.  Seems weird does it not?  Well not really if you have a good grasp of financials.

This is why ownership of property is so much better than paying rent.  Why pay rent if you can pay interest?  This is how property owners can become very rich.  The reason being the long term growth of 2.9% is in reality 10% growth one year and 5% decline the next!  So catch it right and when you want to get out of the game and retire you can get a massive pay off much greater than any private pension can give you.

So if you know anyone who is thinking of selling let them believe the hype.  When they believe the hype we become rich.  Simple.

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