6/6 The great debate: rent or buy? Find out which is better.
Today let’s conclude this email series with the great debate of renting vs. buying from a financial perspective.
Believe it or not, you are better off financially RENTING your own home and buying investment properties, rather than buying your own home. Buying your home is a ‘lifestyle decision’ and will cost you more than buying an investment property. Here’s an example of why this is true:
Let’s say Bob and John own identical houses side by side each worth $400,000. They both have a mortgage of $300,000. They both pay the same rates, insurance, etc.
Everything is identical for the sake of this exercise.
Then one day someone suggests that they swap houses and rent from one another.
How will their situation change?
John will pay Bob $400 per week rent and Bob will pay John $400 per week rent. In essence, the cost of renting that they each incur will be cancelled out by the rent that they each receive. They both still own one property worth $400,000. If the market goes up by 10% they still make the same money. They both still have a $300,000 mortgage and they have the same rates and other bills to pay.
But… Now the property they each own is considered an ‘investment property’. The key difference is the government allows them to claim all their expenses on tax.
All the mortgage interest, all the rates and insurance bills, maintenance costs, everything! The yearly expenses are now considered tax deductions and they will get a significant tax return every year. This is called “rent-vesting”.
From a purely financial perspective, your default should be to rent where you need to live and buy where you will make money. Even better, if you’re in the Defence Force and you get half-price rent then you should definitely be renting. We are not saying that buying your own home is ‘wrong’. It is just important that you recognise that it is a lifestyle decision and not a financial one.
If you have limited money to invest, you can actually get into the market sooner this way. You are no longer constrained to buy where you are living and your buying criteria can be purely focused on investment reasons. As such you will make exponentially more money because you can buy where the property market is booming. There is always somewhere in Australia that is booming. If your criteria are purely investment-driven, then every time you buy a property it can be in a boom location.
We hope you have enjoyed this look at mastering the property game in the current market.
~The Integrity Team
PS – Join our weekly webinars for amazing tips and tricks from the property market! Click 👇below 👇to register.