Is Rent Money Dead Money Or A Strategic Play To Get You To Your Financial Goals
You may have heard people saying “rent money is dead money” before. In a nutshell, it means that you are paying down someone else’s mortgage on a property that they own, just for the privilege of living there for a lease term or two. Meanwhile, you are accumulating no assets for yourself.
You can understand where people are coming from when they say this, but that doesn’t mean you should never rent.
It’s all about your strategy and what you do to achieve your financial goals.
Sure it’s not ideal to just be renting where you live with no plans to invest your money elsewhere. Do that and you’ll get to the end of your life with no assets to pass onto your kids.
But renting your permanent place of residence while simultaneously building a portfolio elsewhere has been shown to have massive potential.
The ultimate case study
If you’re not convinced that renting while you invest is a good thing, consider b Invested’s own founder Nathan Birch.
He invested in property for a decade before finally purchasing an owner-occupier. And what an owner-occupier it was. He ended up building himself a giant estate thanks to the success he had experienced form savvy investing for all that time.
When he started out, he purchased affordable investment properties in areas where the numbers stacked up, while living in his family home or renting.
Had he gone about things the same way everyone else does – i.e. buy an owner-occupier first and mortgage himself to the hilt, with no ability to make other investments- there’s no way he would have been living in the type of home he was able to buy 10 years later.
Swim against the tide
The key to Nathan’s success was his ability to think outside the box; to ignore the same old advice that everyone’s parents, uncles and aunts, grandparents and others give to them and instead set a goal and come up with a clear strategy to achieve it.
People may have traditionally saved for a deposit and paid down a house, but traditionally, deposits were much easier to save. These days, you’d have to save for many years in a low interest rate environment to get a 20% deposit for a property. Or, you’d need to raid the bank of mum and dad. But accumulating equity and value from multiple investment properties could be the smarter way to get together the money you need to get your dream home earlier. And those low interest rates mean that multi-property portfolios are much easier to service and positively gear.
An added bonus
By renting the place you live, you will also often be able to afford a nicer property or suburb than you could if you were buying. There is not as much rental demand for houses as there is for units, so you might find a lease on a proper house for not much more than a two-bedroom apartment.
You could rent away in comfort, enjoying a nice neighbourhood or location, knowing that you’re building your wealth elsewhere.
Play your cards right and you might end up buying an owner-occupier in that location that you never would have been able to afford to if you hadn’t invested.
If you’re not sure where to get started on adopting the right strategies to get there, reach out to b Invested.
Nathan’s team can show you the options that are available to you, which only the experts are aware of.