November 6, 2019 Olivia Romet

Is Rent Money Really Dead Money? By Steven Nickelson

Those who know me well, have probably, at some stage, had a conversation about the benefits of renting versus owning your own home.

Over the years, I relaxed my previously very strong views. Possibly due in part to the fact Lee and I bought and built a home together (so I certainly appreciate that a man’s home is his Castle), although more likely as a conscious bid not to offend budding homeowners.

A couple of recent events have brought the conversation back to the table. A few of my long-term clients shared this ABC News report from last week with me. I’d encourage you to read it, and even consider reading the more intricate research undertaken by EY.

It got me thinking about my own living situation, as Lee and I sold our home in November 2018 to rent again. Nearly 12 months’ on, let’s dissect the decision:

We sold our home, as per above, which cost us $22,673 per year to occupy (Interest Only on Home Loan plus Outgoings).

If you take the net proceeds ($788,238 after sale costs) and invest in a diversified basket of Dividend producing Australian Industrial companies, below you can see the costs to occupy, minus the Net Dividend Income produced by the portfolio. The cost is $9,681 per annum. When compared with $22,673 per annum to occupy our old home, we are approximately $13,000 per annum better off in cash flow. Further, the estimated value of the Rental Property we occupy is around $1.4M and the house is significantly larger than our old home, better accommodating our growing family (with an extra bedroom, bathroom, living area and a 5th bedroom
we use as kids’ toy room).

If our $13,000 annual cash flow surplus and more spacious and newer living space wasn’t satisfying enough, we also signed a further 12 month lease, without any increase in the weekly rent. You might also be intrigued to know, the more expensive the property, the more compelling the rent versus own comparison will likely be.

So in summary, you may find it is better financially, to rent rather than own, depending on your location.

In order for that to be the case, you absolutely must:
• save (at least) the difference between the rent you are paying and the costs of home ownership
• Invest it in a way that matches your investment time frame (eg. Too much Cash can be
dangerous in the long-term, but using Shares to build short-term wealth is risky too)
• Don’t leverage yourself too heavily, and;
• Here’s the plug, seek professional advice!

The decision to own or rent is not always a financial decision. A lot of the time it’s a lifestyle decision. However, you should keep an open mind and consider both options; you might be surprised at the outcome.

And one last thing, if you chose to rent, I implore you, please don’t think of rent as dead money.

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