Can I be building a house with the bank forever?
No, you can't do this indefinitely. For one, you can't just take money out as home equity with no strings attached. The cash out is done as a loan (often a HELOC) or second mortgage and you have to make payments. The lender will always make sure you are able to afford the payments. At some point, you won't qualify for the loan because of insufficient income or too many previous liens on the property. While home values often go up, there's no guarantee. And your examples are more than a bit optimistic. "Another problem with this plan (assuming you get past Rocky's answer somehow) is that you assume that $50K in construction costs will translate to $50K in increased value. That's not always true; the ROI on home improvements is usually a lot less than 100%. You'd also owe more property taxes on your improvements, which would cut into your plan somewhat. But you also can't keep doing this forever. Soon enough, you'd run out of physical and/or legal space to keep adding additions to the house (zoning tends to limit how much you can build, unless you're in the middle of nowhere, and eventually you'd fill the lot), even if you did manage to keep obtaining more and more loans. And you'd quickly reach the point of diminishing returns on your expansions. Many homebuyers might be prepared to pay more for a third or fourth bedroom, but vanishingly few in most markets will pay substantially more for a second billiards room or a third home theater. At some point, your house isn't a mansion, it's ""that ridiculous castle"" only an eccentric would want, and the pool of potential buyers (and the price they'll pay for it) diminishes.  And the lender, not being stupid, isn't going to go on financing your creation of a monstrosity, because they are the ones who will be stuck with the place if you default."
In the 2008 housing crash, cash was king.  Cash can make your mortgage payment, buy groceries, utilities, etc. Great deals on bank owned properties were available for those with cash.  Getting a mortgage in 2008-2011 was tough. If you are worried about stock market crashing, then diversification is key.  Don't have all your investments in one mutual fund or sector.   Gold and precious metals have a place in one's portfolio, say 5-10 percent as an insurance policy.  The days of using a Gold Double Eagle to pay the property taxes are largely gone, although Utah does allow it. The biggest lesson I took from the crash is you cant have too much cash saved.  Build up the rainy day fund. "You got some answers that essentially inform you that CEOs that have £200k written on their paysheet may in fact get much more. I'll take the opposite point of view and talk about people who (according to whatever definition) have a £200k/year income.  How can they afford it Guess no 1: not all of them can (in the sense that it is quite possible to end up with negative net worth at £200k/year income - particularly if you immediately want to show off with brand new luxury cars, luxury holidays and a large house in a very representative region).  Guess no 2: not all of the £200k/year CEOs are equally visible. There is a trade-off between going for wealth, large house, and luxury car. I deliberately ordered the three points according to increased display of ""wealth"". However, display of wealth usually comes at a cost (in a very monetary sense). And there are ways to get much display without having much wealth (see below: lease the car, also the mortgage on the house usually isn't displayed on the outside).   You also need to take into account how long they are already building up wealth. I guess the typical CEO with £200k/year you're asking about did not just finish school and enter his work life in this position. It would be very interesting to see how income, accumulating wealth (and possibly ""displayed wealth"") correlate. My guess is that the correlation between income and accumulated wealth isn't that high, and the correlation between displayed and actual wealth is probably even lower. they possess luxury cars, large house and huge savings Are you sure these are the same managers? E.g. the ones with the huge savings  are and the ones with the luxury cars? I'm asking particularly about the luxury cars, because such cars loose value very quickly and/or are often not owned by the driver but rather by the bank or leasing company. Which on the other hand offers the more savings-oriented CEO who is not that much interested in having a brand new luxury car the possibility to go for a one-year-old and save the rest. Knowing that, your CEO should be able to buy a one-year-old Mercedes SL 350 / year. Or a new one every 1 1/2 years (without building up savings or buying a house). However, building up wealth will be much faster with the CEO going for the one-year-old as the brand-new car option amounts to loosing ca. £20 - 30k within a year. An even-more-savings-oriented CEO who keeps his existing Mercedes 300 TD for another few years, thinking that this conservative choice of car will be trust-inspiring to the customers. Or goes for the SLK thinking that most people anyways don't know that the K between SL and SLK halves the price...  However, if you just want to be seen with the car: after an initial payment of say £8-10k, you can get a decent SLK 350 (not the base model, either) at a monthly rate of ca. 600£/month or less than £7k/year. Note however, that this money does not count towards any kind of wealth, it's just renting a nice car.  In other words: If driving the SLK 350 is your absolute goal, you could in theory have that with a net salary of £25k/year (according to your tax calculation, that should be somewhere around £35k / year gross), if you have the savings for the initial payment (being able to make the initial payment may also help convincin the leasing company that you're serious about it and able to pay your rates).   There are also huge differences in value between large houses, compare e.g. these 2: And, last but not least, there is a decided one-way component in the timing of priorities here: it is much easier to go and get a luxury car when you have savings than first going for the luxury car and then trying to make up with the savings...    I forgot to answer the question in the caption of your question: How do I build wealth By going on to live as if your income were only £50k (as far as that is compatible with your job) - I gather the median gross income in the UK is about £30k, so aiming at £50k leaves you a very comfortable budget for luxury spending.  If you want to build up wealth faster, adjust that. In general, if you can manage to withhold much of any income increase from spending, that will help (trivial but powerful truth). From the leasing calculation you can conclude that you basically have no chance to show off your wealth by luxury cars. That is, you'd need to go for luxury cars that are completely incompatible with with building if you want to show your built up wealth by the car: there are too many people who even destroy their existing wealth in order to display luxury.  At least if anyone is around who has either a correct idea what luxury cars cost (or don't cost) or will look that up in the internet. Also, people who know such things may also have the idea that the probability that such a car was downright paid (wealth) is small compared to the probability of meeting a  leased or (mortgaged) car. Which means, the plan to show off doesn't work out that well with the people you'd want to impress. As for the other people: just a bit of display you can get far cheaper: If you really want to drive the SLK, rent it for an occasion (weekend) rather than for years. I met a sales manager who told me which rental cars they get when important customers from far east are visiting. The rest of the year they drive normal business cars. You may want to choose a rental company that doesn't write their name on the license plate. Apply the same ideas to the decision of buying a house. Think about what you want for yourself, and then look where you can get how much of that for how much money. Oh, and by the way: if I understand correctly, the average UK CEO wage is  £120k, not £200k." "I encourage you to think of this home purchase decision as a chance to buy into a community that you want your children to grow up in.  Try to find a place where you will be happy for the next 20 years, not just the next 2 or 7 years. In your situation, option 1 seems like a bad idea.  It will create an obstacle to having children, instead of establishing a place for them to grow up in. Option 2 is close to ""buying a house on a layaway plan"".  It offers the most financial flexibility.  It also could result in the best long-term outcome, because you will buy in an established area, and you will know exactly what quality house you will have.  But you and your fiancé need to ask yourselves some hard questions:  Are you willing to put up with the mess and hassles of remodelling?  Are you good at designing such projects?  Can you afford to pay for the projects as they occur?  Or if you need to finance them, can you get a HELOC to cover them? Especially if you and your fiancé do much of the work yourselves, break down the projects into small enough pieces that you can quickly finish off whatever you are working on at the time, and be happy living in the resulting space.  You do not want to be nagging your husband about an unfinished project ""forever"" -- or silently resenting that a project never got wrapped up.  I posted some suggestions for incrementally finishing a basement on the Home Improvement Stack Exchange. If you are up to the job of option 2, it is less risky than option 3.  Option 3 has several risks: You don't know what sort of people will live in the neighborhood 5 - 20 years from now.  Will the homes be owner-occupied?  Or rentals?  Will your neighbors care about raising children well?  Or will lots of kids grow up in broken homes?   Will the schools be good?  Disappointing?  Or dangerous?  Whereas in an established neighborhood, you can see what the neighborhood is currently like, and how it has been changing. Unless you custom-build (or remodel), you don't control the quality of the construction.  Some neighborhoods built by Pulte in the last 10 years were riddled with construction defects. You will be paying up-front for features you don't need yet.  You might never need some of them.  And some of them might interfere with what you realize later on might be better. In stable markets, new homes (especially ones with lots of ""upgrades"") often decline in value during the first few years.  This is because part of the value is in the ""newness"" and being ""up-to-date"" with the latest fads.  This part of the value wears off over time. Are the homes ""at the edge of town"" already within reasonable walking distance of parks, schools, church, grocery stores, et cetera?  Might the commute from the ""edge of town"" to work get worse over the next 5 - 20 years?" "It's a little unusual, but I don't think the financial terms are completely unreasonable on their face. What you describe is similar to an interest-only loan, where you make payments that only cover the interest due each month, and the entire principal is due as a single ""balloon payment"" on a specified date (in this case, the date on which the condo is sold).  Your monthly payment of $500 on a principal of $115K is equivalent to an annual interest rate of 5.22%, which at least is not completely usurious.  With a traditional mortgage you might pay a rate as low as 3%, if you had sufficient income and excellent credit - but I don't know, from what you've said, whether that's the case.  Did you make the current arrangement because you were unable to get a loan from a bank? The main difference here is that instead of the balloon payment being a fixed $115K, it's ""75% of the gross proceeds of the sale"".  If the condo eventually sells for $155K, that would be $116,250, so that's slightly advantageous to them (assuming that ""gross proceeds"" means ""before deducting commissions for either the buyers' or sellers' realtors or any other costs of the sale""), and thus slightly disadvantageous to you.  If the condo appreciates in value, that's more of a win for them and more of a relative loss for you.  But it's also possible that the value of the condo goes down, in which case this arrangement is better for you than a fixed balloon payment.  So this deal does prevent you from getting a larger share of any gains in the value of the property, but it also helps insulate you from any losses.  That's important to keep in mind. There's also the issue of needing their consent to sell.  That's potentially problematic - usually in a joint ownership scheme, either owner has the right to demand to be bought out or to force a sale.  I guess it depends on whether you think your parents would be likely to consent under reasonable circumstances, or to insist on holding the property against your best interests. It's true that you aren't building equity with this arrangement, and if you thought you were, you are mistaken or misled.  But let's compare it with other options. If you would qualify for a traditional 30-year fixed mortgage at 3%, your monthly payment would be slightly lower ($484), and you would be building some equity because your payments would reduce the principal as well as paying the interest.  But a 30-year loan builds equity very slowly at first - after 7 years you'd have only about $20,000 in principal paid down. If we assume that 5.2% represents the interest rate you'd otherwise pay based on your creditworthiness, then your monthly payment would be $631.  So compared to that, you have an extra $130 per month that you can save or invest in whatever you want - you're not forced to invest it in your house. Note that in either case you'd still be paying the condo fees, property taxes, insurance, and maintenance yourself.  So we might as well eliminate those from consideration.   It might be a good idea to find out what other options you would have - perhaps try to get an interest rate quote on a traditional mortgage from a bank, based on your income and credit history.  Then you can decide what to do, taking into account: your financial situation; how much of a monthly payment could you afford? your relationship with your parents; are they likely to be reasonable about renegotiating?  Do they in general tend to respect your wishes?  Would it harm your relationship if you tried to get out of the deal, and how important is that to you? To what extent do you actually want to pay for equity in this property? Do you really believe it's a good investment, and have evidence to support that?   Your options include: Try to renegotiate the terms of the loan from your parents Try to ""refinance"" the loan, by getting a loan from a bank and paying off some agreed-upon amount of principal to your parents Try to force the sale of the condo and move to another house, financing it some other way Consult a lawyer as to whether your agreement with your parents is legally enforceable.  For instance, do they have a lien on the property?" "Because this question seems like it will stick around, I will flesh out my comments into an actual answer. I apologize if this does not answer your question as-asked, but I believe these are the real issues at stake. For the actual questions you have asked, I have paraphrased and bolded below: Firstly, don't do a real estate transaction without talking to a lawyer at some stage [note: a real estate broker is not a lawyer]. Secondly, as with all transactions with family, get everything in writing. Feelings get hurt when someone mis-remembers a deal and wants the terms to change in the future. Being cold and calculated now, by detailing all money in and out, will save you from losing a brother in the future. ""Should my brother give me money as a down payment, and I finance the remainder with the bank?"" If the bank is not aware that this is what is happening, this is fraud. Calling something a 'gift' when really it's a payment for part ownership of 'your' house is fraud. There does not seem to be any debate here (though I am not a lawyer). If the bank is aware that this is what is happening, then you might be able to do this. However, it is unlikely that the bank will allow you to take out a mortgage on a house which you will not fully own. By given your brother a share in the future value in the house, the bank might not be able to foreclose on the whole house without fighting the brother on it. Therefore they would want him on the mortgage. The fact that he can't get another mortgage means (a) The banks may be unwilling to allow him to be involved at all, and (b) it becomes even more critical to not commit fraud! You are effectively tricking the bank into thinking that you have the money for a down payment, and also that your brother is not involved! Now, to the actual question at hand - which I answer only for use on other transactions that do not meet the pitfalls listed above: This is an incredibly difficult question - What happens to your relationship with your brother when the value of the house goes down, and he wants to sell, but you want to stay living there? What about when the market changes and one of you feels that you're getting a raw deal?  You don't know where the housing market will go. As an investment that's maybe acceptable (because risk forms some of the basis of returns). But with you getting to live there and with him taking only the risk, that risk is maybe unfairly on him. He may not think so today while he's optimistic, but what about tomorrow if the market crashes? Whatever the terms of the agreement are, get them in writing, and preferably get them looked at by a lawyer. Consider all scenarios, like what if one of you wants to sell, does the other have the right to delay, or buy you out. Or what if one if you wants to buy the other out? etc etc etc. There are too many clauses to enumerate here, which is why you need to get a lawyer." Are there any known laws explicitly allowing or preventing this   behavior? It's not the laws, it's what's in the note - the mortgage contract. I read my mortgage contracts very carefully to ensure that there's no prepayment penalty and that extra funds are applied to the principal. However, it doesn't have to be like that, and in older mortgages - many times it's not like that. Banks don't have to allow things that are not explicitly agreed upon in the contract. To the best of my knowledge there's no law requiring banks to allow what your friend wants. "Here are some important things to think about.  Alan and Denise Fields discuss them in more detail in Your New House. Permanent work.  Where do you want to live?  Are there suitable jobs nearby?  How much do they pay? Emergency fund.  Banks care that you have ""reserves"" (and/or an unsecured line of credit) in case you have a run of bad luck.  This also helps with float the large expenses when closing a loan. Personal line of credit. Who are you building for?  If you are not married, then you should consider whether building a home makes that easier, or harder.  If you hope to have kids, you should consider whether your home will make it easier to have kids, or harder.  If you are married (or seriously considering it), make sure that your spouse helps with the shopping, and is in agreement on the priorities and choices.  If you are not married, then what will you do if/when you get married?  Will you sell?  expand?  build another house on the same lot?  rent the home out? Total budget.  How much can the lot, utilities, permits, taxes, financing charges, building costs, and contingency allowance come to?  Talk with a banker about how much you can afford.  Talk with a build-on-your-lot builder about how much house you can get for that budget.  Consider a new mobile or manufactured home.  But if you do choose one, ask your banker how that affects what you can borrow, and how it affects your rates and terms.  Talk with a good real estate agent about how much the resale value might be. Finished lot budget. How much can you budget for the lot, utilities, permits required to get zoning approval, fees, interest, and taxes before you start construction? Down payment.  It sounds like you have a plan for this. Loan underwriting.  Talk with a good bank loan officer about what their expectations are.  Ask about the ""front-end"" and ""back-end"" Debt-To-Income ratios.  In Oregon, I recommend Washington Federal for lot loans and construction loans.  They keep all of their loans, and service the loans themselves.  They use appraisers who are specially trained in evaluating new home construction.  Their appraisers tend to appraise a bit low, but not ridiculously low like the incompetent appraisers used by some other banks in the area.  (I know two banks with lots of Oregon branches that use an appraiser who ignores 40% of the finished, heated area of some to-be-built homes.)  Avoid any institution (including USAA and NavyFed) that outsources their lending to PHH. Lot loan.  In Oregon, Washington Federal offers lot loans with 30% down payments, 20-year amortization, and one point, on approved credit.  The interest rate can be a fixed rate, but is typically a few percentage points per year higher than for a mortgage secured by a permanent house.  If you have the financial wherewithal to start building within two years, Washington Federal also offers short-term lot loans.  Ask about the costs of appraisals, points, and recording fees. Rent.  How much will it cost to rent a place to live, between when you move back to Oregon, and when your new home is ready to move into? Commute.  How much time will it take to get from your new home to work?  How much will it cost?  (E.g., car ownership, depreciation, maintenance, insurance, taxes, fuel?  If public transportation is an option, how much will it cost?) Lot availability.  How many are there to choose from?  Can you talk a farmer into selling off a chunk of land?  Can you homestead government land?  How much does a lot cost?  Is it worth getting a double lot (or an extra large lot)? Utilities. Do you want to live off the grid?  Are you willing to make the choices needed to do that?  (E.g., well, generator, septic system, satellite TV and telephony, fuel storage)  If not, how much will it cost to connect to such systems?  (For practical purposes, subtract twice the value of these installation costs from the cost of a finished lot, when comparing lot deals.) Easements. These provide access to your property, access for others through your property, and affect your rights.  Utility companies often ask for far more rights than they need.  Until you sign on the dotted line, you can negotiate them down to just what they need.  Talk to a good real estate attorney. Zoning. How much will you be allowed to build?  (In terms of home square footage, garage square footage, roof area, and impermeable surfaces.)  How can the home be used?  (As a business, as a farm, how many unrelated people can live there, etc.)  What setbacks are required?  How tall can the building(s) be?  Are there setbacks from streams, swamps, ponds, wetlands, or steep slopes? Choosing a builder.  For construction loans, banks want builders who will build what is agreed upon, in a timely fashion.  If you want to build your own house, talk to your loan officer about what the bank expects in a builder. Plansets and permits.  The construction loan process. If you hire a general contractor, and if you have difficulties with the contractor, you might be forced to refuse to accept some work as being complete.  A good bank will back you up.  Ask about points, appraisal charges, and inspection fees. Insurance during construction.  Some companies have good plans -- if the construction takes 12 months or less.  Some (but not all) auto insurance companies also offer good homeowners' insurance for homes under construction.  Choose your auto insurance company accordingly. Property taxes. Don't forget to include them in your post-construction budget. Homeowners' insurance.  Avoid properties that need flood insurance.  Apply a sanity check to flood maps -- some of them are unrealistic.  Strongly consider earthquake insurance.  Don't forget to include these costs in your post-construction budget. Energy costs.  Some jurisdictions require you to calculate how large a heating system you need.  Do not trust their design temperatures -- they may not allow for enough heating during a cold snap, especially if you have a heat pump.  (Some heat pumps work at -10°F -- but most lose their effectiveness between 10°F and 25°F.)  You can use these calculations, in combination with the number of ""heating degree days"" and ""cooling degree days"" at your site, to accurately estimate your energy bills.  If you choose a mobile or manufactured home, calculate how much extra its energy bills will be. Home design.  Here are some good sources of ideas: A Pattern Language, by Christopher Alexander.  Alexander emphasizes building homes and neighborhoods that can grow, and that have niches within niches within niches. The Not-So-Big House, by Sarah Susanka.  This book applies many Alexander's design patterns to medium and large new houses. Before the Architect.  The late Ralph Pressel emphasized the importance of plywood sheathing, flashing, pocket doors, wide hallways, wide stairways, attic trusses, and open-truss or I-joist floor systems.  Lots of outlets and incandescent lighting are good too.  (It is possible to have too much detail in a house plan, and too much room in a house.  For examples, see any of his plans.) Tim Garrison, ""the builder's engineer"".  Since Oregon is in earthquake country -- and the building codes do not fully reflect that risk -- emphasize that you want a building that would meet San Jose, California's earthquake code." "Is it safe? No in general. Are there any other safe ""paper"" ways to invest money let's say for 30 years and be sure nothing will happen to them and you will end your life without relying on pension? No. In these times only real properly gives you some sort of warranty in 5-30 years term. Land, buildings, production lines. Not necessary in US - lots of countries have 0 or fairly low property tax. Some gold, platinum, silver and other rare elements to diversify. - This is the only way you can be sure you will not suddenly loose everything."