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Why Real Estate is the Best Asset



Today is the 24th anniversary of a property purchase I made in August 1999. The price I paid was UK£195,000. Today, adjusted officially for inflation, the present value of that money is £355,524. This means in todays money 355K is what I would have paid back then.

This works out at 82% inflation over 24 years.

The current selling price is UK£725,000. In real terms I've made 725-355K = £370,000 from buying this property.

So, without doing anything at all, in real terms I have made at least £15,000 per year, way above the so called minimum wage scandal. In fact I've done less than nothing at all for that unearned bonus because the building itself has depreciated while I've been happily using it up - I've had very good use out of it for a massive increase in value... for FREE!

Bearing in mind the building has pretty much depreciated toward zero in value over time - so, to bring it back up to its original value in bricks, tiles structure and internal goods would be close to the cost of rebuilding it. 

Any increase in its current selling price cannot possibly be anything to do with the building itself.

So what is its current selling price mostly to do with? Well, everything else about the property, which is NOT the building and improvements of course. That means, its LOCATION VALUE - the imaginary square of land directly under the building, represented on its land title lodged with the government authority in charge of controlling the 27 million others in the UK - The UK Land Registry

It's much easier to calculate this than working out if I've paid either too much or too little tax in this year or that year. Very much easier. At the very least it is the current selling price minus whatever is the price of the cheapest selling near identical house anywhere else. And there's an army of chartered surveyors and a powerful industry group, the Royal Institute of Chartered Surveyors, who can quickly attest to the value of a property, in any location within a day or so. They make these calculations thousands of times daily.

This was all set out clearly by late and great Mark Wadsworth pointed it out a decade ago. I'm no fan of politically motivated fiscal policy though so please don't call me a communist or similar, else you will be fair game to me from now on.

In real terms I've made 725-355 = £370,000 from buying this property, and just sitting on it for 24 years. All tax free. Always bailed out during hard times by government of all parties - no party will touch homeownership because they would be unelectable for 20 years for this very reason - its the most lucrative and well protected tax free asset any investor should buy.

Homeownership is the one fiscal policy which unites all political parties in perfect harmony. But isn't it much more than that - left and right, white or black, male or female, gendered or not, religious or secular, we are all united here. Isn't that a great thing? Should we pushing our leaders for more of it?

What is even greater about this particular asset for me? I also rent it out. I get about 5% of its selling price per year in rent. Around £30,000. this is on top of the increase in price of 15K(which is a conservative number for sake of argument). So I make about £45K a year having done nothing for it, its tax free and fully protected by all governments. 

Think about it: To receive in my pocket £45K in one tax year, I would have to earn about £90K to cover the stupidity of taxation. This is not to mention the additional wealth my company has to find to cover the taxes they must pay just for employing me. Though different nations have different tax structures, fundamentally all of them take, by force from your wage packet before you've even laid hands on it, about the end.

Don't make the faux libertarian mistake of saying "but you do pay income tax on the rent". Faux libs are as wrong as all socialists are always wrong about nearly everything. Try not to be either and your household will be much safer from your dangerous worldview. I claw back the income tax many fold from the increasing price - it all gets paid back by government of all parties from the increasing price it gains from what the tax payer buys for me in capital works projects, roads, schools, hospitals and what skilled entrepreneurs provide in better industry and jobs - its location value!

Location, location, location. Heard it before?

With these assets I've been accumulating over the years, my family is 100% safe from the less than desirable elements we must all bear in this world. Rather than adopting a religion or politic to escape from this opportunity and put your household at risk, why not change your attitude towards the world. And save your people.