Renting WHERE YOU LIVE

Like everything in life, there are always advantages and disadvantages to owning your own home. A key advantage would be the perceived ‘security and stability’ that having your own home gives, especially with young children. The “nest”, or family home, is a great place of stability to raise children without the stress of having to move on whenever your landlord wants to sell.

On the other hand, if you rent where you live you can still attain security and stability by locking in for a longer lease, say 3 – 5 years. Imagine how keen a landlord would be to have a tenant who wants to commit to a 3 – 5 year lease. It’d be a dream!

A lot of clients have asked me “Is renting dead money?” and to this I say that it really depends on what the property market is doing.

If property prices are going through the roof and increasing rapidly, then yes by renting you are missing out on this capital growth but if property prices are stagnant or plummeting then paying a mortgage is also ‘dead money’ as your higher mortgage repayments are made with the mindset that you will be getting some capital growth as compensation for that higher payment. If property prices are declining and you are paying a higher repayment as well as having your house value reducing, then that is DEAD MONEY in the short term.

My mentor, Robert Kiyosaki, taught me very early in my career that your Home is Not an asset. I know that may sound strange and certainly there are points to both sides of the argument, but his definition of an asset is something that generates an income stream. Your home certainly doesn’t generate an income stream, and it definitely doesn’t put money into your pocket on a weekly or monthly basis, it’s quite the opposite!

My personal situation is that I rent where I live and I have 13 investment properties. All with ‘good debt’ attached to them. No bad debt means my borrowing capacity is enhanced as the bank sees each debt with tax-deductible interest as well as rental income to help me service the debts. Doing this gives me a fantastic tax deduction each year and helps minimise the amount of tax I pay to the dreaded tax man!

The downside to this is that if I was to sell one of my properties then I will have to pay Capital Gains Tax as the property is an investment and not owner occupied, but this just reiterates my key investment philosophy with property which is NEVER EVER SELL!

So the concept of buying an investment property instead of a home to live in, and renting where you live, is something which may give you some food for thought. It certainly has its benefits financially, but you have to take into account your own personal lifestyle requirements. Just remember, you can always buy a home if and when property prices start to move up or move
back into the property at the end of your lease…. You’re not stuck renting forever if you want to change your mind!

Scott Parry

*Comparison rates are calculated on the basis of secured credit of $150,000 over a 25 year term. Please note this comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.