Rent Money Isn’t Dead Money

In Australia, there’s always been a long-held belief that rent money is dead money.

Rent money probably is dead money if you’re not doing anything else with the cash. But if you’re prepared to invest, you can actually get the best of both worlds.

There’s no better example of this than where I currently live.

I choose to rent in Watsons Bay because it’s one of the great locations in the country. It’s the definition of an aspirational suburb and somewhere I’ve always wanted to live.

However, instead of buying in Watsons Bay, I choose to rent there.

While I could conceivably buy a property there, when we look at the numbers, it makes far more sense to rent.

A typical house in Watsons Bay is probably going for around $8 million.

If I were to buy, I’d have to put down $1.6 million for a deposit, just to begin with. That’s money that I could very well be investing into something else.

I’d then have repayments on the $6.4 million mortgage I would have to take out – that would probably end up being something like $40,000 per month.

Instead of that, I am currently paying $1900 per week for the exact same lifestyle benefits.

I’m also able to claim a portion of that as a home office.

With that $1.6 million that I’m saving and the $30,000 per month, I can go out and purchase multiple investment properties.

Those investment properties will bring in additional rental income. The interest is tax deductible, along with all of the costs to maintain the property, as well as things like rates and water.

Those multiple investment properties will keep on growing in value as well and ensure that my equity is increasing and I’m not falling behind.

That’s really the reason why renting can work so well for you.

People always want to live in a better property. But by continuing to try and keep up with the Joneses, it puts you in a tough position if you choose to own.

You are always going to struggle to keep up because the cost of the property ends up being so high when it’s your PPOR.

You pay interest which over a 30-year mortgage ends up costing you the same price you paid for the property again.

So that $8 million property would likely be costing me $16 million.

I’d also be paying that interest using after-tax income. So that means the property is more than likely going to cost me $20 million plus.

Or I could just rent it and funnel all that cash into investments.

It’s a great way to have the best of both worlds.

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