Investing in property has historically been a sound investment, yet alternative investments (like Cryptocurrency) have been gaining traction over the last five years. So, should we all ditch buying our own home and buy Bitcoin?
Cryptocurrency with such names as Bitcoin and Ethereum are being bandied about as the new investment vehicle everyone should be investing in. But is Crypto a sound investment or just an ‘end of the seaside pier one arm bandit’ speculation?
Well to start, I need to discuss the difference between investing and speculation.
I have always seen investing as making a thorough detailed evaluation (and you are realistically sure your principal lump sum is relatively safe), you then have an opportunity to make a profit. Whilst speculating is all about putting your money into an asset that has ambiguous protection of your principal lump sum … and you have an opportunity to make a large profit but also the potential to make a huge loss.
In a nutshell, investment should be as interesting as watching paint dry and speculating should be as exciting as putting all your money on red on the roulette wheel.
So, let’s see what has happened to both Cryptocurrency and Newbury property in the last five years.
The average Newbury home five years ago was worth £392,230, today it’s worth £448,150.
We now ask, what would have been the return if you had invested the same amount in Bitcoin?
If you had invested £392,230 into Bitcoin in 2016,
it would be worth £19,925,300 today.
What about the return if you had invested the same amount in Ethereum?
If you had invested £392,230 into Ethereum in 2016,
it would be worth £64,765,900 today.
Yet only In June, when China placed stringent controls on how its population can use Cryptocurrency, Bitcoin dropped in value by 30% in one day. Also, this year, we saw another fall in Bitcoin when Elon Musk tweeted that Tesla were banning the acceptance of Bitcoins to buy its cars.
Can you imagine the value of your Newbury home dropping in value by £136,686 in just one day because of one tweet?
The concept that the home you live in can be an investment comes from the statistic that, historically, property values increase. We all know someone, our Mum and Dad or Grandparents for example, who purchased their Newbury home in the 1950’s or 1970’s for the price of an Xbox and it’s now worth more than you make in ten years in salary.
Yet, I believe, it’s not an investment only because it goes up in value. A home has a more important primary purpose.
Possibly the specific biggest reason why your home is not an investment is because its prime purpose is providing a roof over the heads of you and your family. One of the most rudimentary issues that makes an investment an investment, is your capability to decide the timing of your possession of the investment.
A true investment requires you to buy it and sell it at times (and under situations) that are probable to exploit your investment return, yet since your Newbury home is your family’s shelter, you will have hardly any power over the sale and purchase of your Newbury home from an investment perspective.
The absence of ‘real’ control over the timing of buying and selling our Newbury homes (and note I use the word home and not house) has had a significant harmful effect on the property as an investment.
In all my years in the property profession, I have seen numerous Newbury people buy houses at the top of the market (1988 and 2008) because that was the time that they required a home for their family, but those same people became stuck, having to sell their homes a few years later because of personal circumstances, albeit for a loss.
Then I have seen others buy at the bottom of the market (1993 and 2011) because that was the time that they also required a home for their family, and those same people had to sell their homes a few years later due to personal circumstances, albeit for a huge profit. Are the second set of people more savvy investors? No, it was just good or bad timing, and that is not uncommon when it comes to buying homes, and so has to, in my opinion, exclude a home as an investment.
But isn’t renting out a property an investment?
The solid fact is that your Newbury home, the home that you live in, basically won’t provide any form of cashflow when you are a homeowner, unless you move out and rent the whole house to someone else. That is called a buy-to-let investment – of course that is an investment and I know many Newbury buy-to-let landlords who make a decent living at renting out their rental properties.
Yet, that wasn’t the point of the question I asked originally – “is buying a home, for you and your family to live in, a good investment?”
Of course, you could take in a lodger or rent rooms out as an Airbnb, and this will help you pay your mortgage, Council Tax and other costs associated with homeownership, so it can be worth it for many. However, an “Englishman’s home is his castle” is quite apt and most of us aren’t good with sharing it with strangers.
What do we buy homes for then?
We are all guilty of checking out Rightmove when a property on our street comes up for sale. Yes, we are nosey by looking at the pictures, yet the most important thing is what price they’re asking and how it compares to our home. Our home is our biggest tax-free asset and especially when it goes up in value, which it certainly has done for the last nine or ten years, it certainly can feel like an investment then.
However, during the five property crashes that we’ve had since World War II, not only did property values not increase, but they fell. Some dropped dramatically. For homeowners in that position, not only was their home not an investment, but it had become a huge liability.
Thank you for taking the time and trouble in reading this article. I must stress that I’m talking about our own homes as an investment and not buy-to-let investment which is a completely different animal and certainly is an investment if done correctly.
One final thought – for those of you buying and selling Cryptocurrency – enjoy your roller coaster. For me, the thing about property is this; you can touch it, you can feel it, there is something reassuring about a 9-inch red brick and tiled roof. It’s home, it’s where you bring up your family, it’s where memories are made and the best investment you can make in life is with them, your family … and for that – it is a priceless and enduring investment.
These are my thoughts, please tell me what yours are.
