Getting Someone Else to Buy Your Home

We are trying to manage money so that it will work for us, and will be able to operate over and over again if we’ve set things up correctly.

Let’s repeat our basic premises:

Money is a servant, so use it as a servant.

You dont work for money, Money works for you.

Create formulas that encapsulate what it is you want to achieve.

Make sure every formula produces a positive result.

Also make sure every formula is open-ended, namely, that it can produce a situation which can be replicated and continued without necessary adding in anything.

Use compound interest to your benefit.

Start with your end goal and work towards it.

I am starting with the basic requirement that I want to end up with a nice house that may initially cost me some sweat and money, but will basically be paid for by someone else. What are the main stages in this operation?

First I need to get on the property ladder, but without strangling myself with a mortgage. That way spells decades of struggle. Not for me, thank you. It also means compound interest is working against me instead of for me.

Second I need to develop the system in such a way that it becomes self replicating.

Third I want to enjoy my success.

Finally, I may decide to chuck it all in and convert most of my assets to a nice fat income.

Okay, back to stage one. This is how to do it.

The first stage needs to be open ended so you need to buy your first house without a mortgage. A mortgage gives you a closed situation, which doesn’t open itself to continuation until it’s paid off, probably thirty years down the road. But you need to get started, so you buy something cheap that needs work doing on it. This is how you pay for it.

Let’s assume you can buy something for £50,000. There are lots of properties about that are cheap. You also need one that needs work doing, so you can do that yourself and increase the property’s value.

Let’s assume you have at least some savings. You should be able to manage £10k. However, the bulk of the money will come from credit cards. You need four credit cards with £10k available on each. Starter loans are interest free for the first fifteen months. If you need a top up I’m sure your local bank will oblige with anything up to £10k for a year or so.

You now can buy the house and it will be mortgage free. It isn’t what you want, but it is a roof over your head, and you have got onto stage one. You now spend the next year tarting up the place so you can use it as security for buying house number two.

You now have some rather hefty loans to pay back, but once you are ready to buy the second house you rent out the first property and use the rent to go toward paying a mortgage on the first property, and transfer what is not paid off on the non-mortgage loans to the second house.

You now tart up property number two. You can then rent that out and mortgage it, using the mortgage funds to buy the next property. You now have an open ended borrowing situation and you can go on doing this as long as you like. Each time you go upmarket with your purchases, and each time you buy property that needs work doing. You do that and thereby increase the value of what you’ve bought.

All the way down the line after your first deal someone else is paying the major part of your mortgage finance.

With any luck, after about five years you can afford the house you really want, and someone else is paying for it.

I’ve done this all my life. But there comes a time when you dont really need the big fancy house. The kids have left home. Who needs those extra bedrooms? And your mathematical mind is looking at the finances and doing some secret calculations.

I have been swapping notes with a colleague who lives further up the hill from me. We have both decided it is time to swap things around. Let’s do some freaky maths.

I have just had my house valued. Depending on how it is advertised it should sell for anything from €850,000 to €1,100,000. Let me be pessimistic and assume I sell for a fraction under the lower price. After sale costs let’s assume I end up with something over €700,000.

Now let’s play with the maths.

I could rent a similar house for about €1,500 a month.

I can easily invest and get a 10% return. In real terms I can get property renovation deals which will bring me in 50% profits p.a., but let’s be very conservative and stick with the 10% return.

I can buy a very nice house across the border in Spain, which is more manageable. Cost is €180,000. Let’s therefore assume I buy that and invest the balance, which we’ll call €500,000. That will bring me in, say €50,000 a year. Sounds good to me.

Let’s do two sums.

Sum number one. Living in my existing house would cost €18,000 a year in rent.

The opportunity cost of owning the house is that €80,000 I could be earning if I converted my ownership to rental. I’d be €52,000 a year better off by renting. I would be mad to continue owning. Now is the time to rent, or look around me and buy somewhere that suits me for a much lower price.

By doing a timely spot of maths I get a more manageable home and increase my income by approximately €32,000 p.a.

Wait a minute, what is to stop me from using both sets of calculation? I can keep a house to live in while keeping a house to rent. By judiciously living in a house which I buy when prices are low, and selling them when prices are high I can ratchet up my wealth at each property price cycle. For the record, now is clearly time to sell and invest in something else while renting.

Now that’s how to get money working for you. My home, my income, and my pension are all being paid by other people. Useful stuff, money. I can never understand why so many people are so keen to spend the stuff.

I will add this workout to my book Being Rich is Easy, and add in copious notes, plus two alternative financial tables, show what it really costs doing it the wrong way, and what it really costs plus the benefits by doing it the sensible way. I will add in the link when the book update is published.