1% rule for housing applicable UK / Worldwide?

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bristoldude
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1% rule for housing applicable UK / Worldwide?

Post by bristoldude » Thu Mar 16, 2017 7:55 am

the 1% rule has some up in a few threads now as a good measure of when it's worth buying over renting (Does the monthly rent equal one percent of the purchase price or more?)

I wonder if there is any reason this would be only applicable in the US, or if it would be worth following globally.

Specifically in the UK, I can't see this being achievable in any city. Recently I've been looking in glasgow ahead of a move there later this year.

rent wise, a pretty fancy 2 bed flat is around £900 a month, while similar properties seem to be around £140,000 to buy. (works out to about 0.65% monthly).

This is in one of the cheaper cities in the UK and in the top 10 cities if you look for rental yields.

So is it ever worth buying property at this sort of %? Is it ever worth buying property in the UK?

ducknalddon
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Re: 1% rule for housing applicable UK / Worldwide?

Post by ducknalddon » Thu Mar 16, 2017 8:16 am

Having a nice simple answer to these questions is quite appealing but almost certainly wrong. There are a lot of variables to consider that make the answer different for each individual.

jacob
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Re: 1% rule for housing applicable UK / Worldwide?

Post by jacob » Thu Mar 16, 2017 8:32 am

To consider several more variables, use the NAV equation. It's in the ERE book but it's universal, so you can find it anywhere.

Ydobon
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Re: 1% rule for housing applicable UK / Worldwide?

Post by Ydobon » Thu Mar 16, 2017 11:30 am

Glasgow resident here feel free to ask questions and I'll do my best to answer.

The rental market is as horrible here as it is in any other major city, properties snapped up in hours/sight unseen, toerag landlords etc.

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chenda
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Re: 1% rule for housing applicable UK / Worldwide?

Post by chenda » Thu Mar 16, 2017 12:32 pm

A 12% annual yield is very unlikely to be achievable anywhere in the U.K. at the moment - I could get 6% gross in Southampton.

JamesR
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Re: 1% rule for housing applicable UK / Worldwide?

Post by JamesR » Thu Mar 16, 2017 6:34 pm

Apparently the 1% rule is supposed to be a simplification of comparing the downpayment & housing costs vs investing the down payment @ probably 8% & just paying rent. This rule of thumb doesn't really apply in high density population cities.

MDFIRE2024
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Re: 1% rule for housing applicable UK / Worldwide?

Post by MDFIRE2024 » Fri Mar 17, 2017 10:26 am

Another example from south germany where the housing prices have increased strongly over the last couple of years.

in a very small city (around 15 thousand pop.)
monthly rent: 678
price: 184000 (january 2017)
= 0,37%

is this good or bad right now?
- as a house owner?
- as a renter?

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vezkor
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Re: 1% rule for housing applicable UK / Worldwide?

Post by vezkor » Tue Mar 21, 2017 12:10 pm

MDFIRE2024 wrote:Another example from south germany where the housing prices have increased strongly over the last couple of years.

in a very small city (around 15 thousand pop.)
monthly rent: 678
price: 184000 (january 2017)
= 0,37%

is this good or bad right now?
- as a house owner?
- as a renter?
very good for the renter, very bad for the owner.

I use the mental exercise (as a proxy only, to get myself into the right ballpark): I have $184,000 invested in "the market" and that chunk of assets earned me $8,163 last year (678 x 12)... or 4.42%. Am I happy with this result? No. As a homeowner you take on additional risks so you wouldn't be happy unless that result was at the very least 10-12% (preferably more).

Since this is the viewpoint of the owner, the viewpoint of the renter becomes: I got to consume $184,000 worth of housing for a year which should have cost $18,400 ($1533.33 per month) and it only cost me $8,163 so I'm happy as can be!

This situation vastly favors the renter. You see similar situations in large Canadian cities pretty regularly, too. Where I live, typically the buyer is currently favored because monthly rents are creeping up above 1% the value of the home/unit.

MDFIRE2024
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Re: 1% rule for housing applicable UK / Worldwide?

Post by MDFIRE2024 » Wed Mar 22, 2017 11:56 am

@vezkor: Thank you for the great explanation. I also had the idea to compare it with an investment in the stock market. You showed it quite good.
I am a owner. What I do consider also is the potential increase of home prices, maybe around 5% p.a. And another point is important for me. In Germany there is a law, if you live in your own house and you sell it years later, you won't have to pay taxes. In the other case with the investment in the stock market you do have to pay taxes. It is a bit tricky, but right now I think I will stay with my house :-)

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vezkor
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Re: 1% rule for housing applicable UK / Worldwide?

Post by vezkor » Thu Mar 23, 2017 10:59 am

Very interesting!

In the US, consumption of BIGGER and BETTER housing is highly encouraged because, if you sell an owned home here: You have to pay tax on the capital gains UNLESS you spend that money to purchase even more real-estate.

It's always good to keep your options in mind :) You'll know what works best in your own country, ultimately.

bristoldude
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Re: 1% rule for housing applicable UK / Worldwide?

Post by bristoldude » Mon Mar 27, 2017 3:16 pm

well, thanks everyone..

It certainly does seem like it's a rough deal for buyers in the UK at the moment then.

I'll continue researching as I get closer to the move, see if there's anything closer to the mark.

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