Is Ownership Overrated? Why You Should Consider Leasing or Renting Property
As a dentist or practice owner, you are doubtless spinning countless plates, so purchasing and maintaining an expensive second home could prove more trouble than it is worth.
While a second property can be an excellent investment and a welcome chance to relax and enjoy yourself, there are plenty of factors to consider. In the last couple of months, I have heard from three couples with properties in Switzerland, South Africa and France who are now selling their second homes.
In this article, I explain why leasing or renting a second home could be a savvier and less stressful option.
Rationality
Imagine you have always wanted a villa in Spain. The asking price is £500,000, although that is before purchase costs and taxes. You manage to raise £100,000 as a deposit, but you still need a loan of £400,000 and say £50,000 for taxes to complete.
You then need to add interest costs, mortgage repayments and maintenance expenses into the mix – plus the ‘cost’ of your time to manage the property.
With an interest rate of 5%, the repayments on £400,000 over 15 years would be over £3,000 a month. You would also ‘lose’ any interest potentially received on the £150,000 needed for the deposit and purchase costs.
Assuming maintenance, repairs and some contingency costs were a further £6,000-7,000 a year, your outlay could easily add up to £50,000 a year.
Flexibility
Although there are many benefits of owning a second property, I hear countless stories where they can become something of an ‘albatross’ - paying 200%-300% on council tax, having to find trusted builders and cleaners, and generally keeping on top of paperwork.
Another issue with buying second homes is that you might not always be able to spend two or three weeks there each year – and if it is costing up to £50,000 a year, that’s an expensive three weeks!
Even worse, you could fall out of love with the place and realise you would really prefer to spend time elsewhere.
There is also no guarantee that, when you do sell, you will be able to find a buyer that wants it for the price you think it is worth, making the investment either less profitable or, in a worst-case scenario, completely illiquid. Renting or leasing can remove this stress and allow you to change your mind at any time.
A flexible, tax-efficient and interesting alternative
As an alternative, if you had £30,000 a year to spend on amazing holidays with your family and invested £20,000 a year (and the original £150,000) at 6% a year, you would accrue an investment of over £850,000 after 15 years. So I would definitely recommend doing the numbers and weighing up your options.
Less responsibility
Buying a property is recognised as one of the most stressful things you can do. When you factor in travel, worrying about damages, theft and weather conditions, the inevitable admin and paperwork (such as creating a will in that country), ownership can be even more taxing.
Even the day-to-day tasks that you might not immediately think about should come into the equation – buying soft furnishings, changing the bedding, checking the plumbing, clearing the drains. You might not be doing this yourself but simply paying a premium for maintenance (if you can find someone you trust) is another task and expense.
Being a dentist and keeping up to date with your CPD comes with many responsibilities, even more so if you are running a dental practice so adding more action points to your list may not always be wise.
Advantages of ownership
Despite the doom and gloom scenario I have painted here, one of the obvious advantages of ownership is that, once you pay off the mortgage, you have an asset.
I have seen examples of second home purchases that have worked out fantastically for clients and their families (even if they do complain about the council tax every time we speak...).
I have a client who has had a second home in Cornwall for over 15 years. They have been disciplined about using it, made friendships in the local area and keep all their beach equipment there for the summer!
At the end of the day, it all comes down to doing what makes you happy – and sound financial planning. Understanding your finances allows you to make informed decisions and eliminates a lot of the worry caused by ownership.
I would recommend having a detailed understanding of the maths so you can make an informed choice rather than a rash decision which you might live to regret. An even better idea might be to consider working with a financial planner to have a detailed grasp of what your financial situation would look like in any event.
Whether you are looking to buy, rent or lease, abroad or in the UK, feel free to get in touch and we can help you run the numbers.
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