• Miss Money Box

Is rent money dead money?

There is something to be said for owning your own little piece of the world. It’s the great Aussie dream to have a house to live in and grow with, but should it be your biggest asset? Is it even an asset at all?

Rich Dad, Poor Dad author Robert Kiyosaki says that a house you buy to live in is a liability, “an asset is only something that puts money in your pocket. If you have a house that you rent out to tenants, then it’s an asset. If you have a house, paid for or not, that you live in, then it can’t be an asset. Instead of putting money in your pocket, it takes money out of your pocket. That is the simple definition of a liability.”

Savvy property investors don’t live in their own homes, they rent them out, claim the tax benefits and earn all the capital growth that comes with property value.

Why do we think rent money is dead money?

ding dong

Ding dong, is your rent money dead?

In Australia, the general consensus is that property is a safe and somewhat sure bet. It’s the go-to option for investing that will generally increase in value over time. It forces us to save, can provide leverage and gives us a sense of security.

If you consider rent money to be dead money you should also consider the huge amount of interest you will pay on your mortgage as dead money.  And while you will own the home after 20-30 years of mortgage repayments, it will limit your options and choices in a number of ways:

  1. Lack of diversification. Having a mortgage puts all your investment eggs in one basket rather than allowing you to diversify through a range of options… like shares, bonds, index funds or your mate’s mature online dating start-up.

  2. Opportunity cost. With all your money tied up in property, you can’t invest it elsewhere for potentially greater returns if the opportunity arose.

  3. No flexibility. If you rent, you have the freedom to move whenever and wherever you wish at very short notice.

  4. Maintenance costs. Home ownership means home maintenance, so if your oven explodes or your roof leaks you have to pony up the cash to fix it.

  5. Transaction fees. You have to pay transaction costs such as stamp duty, legal and conveyancing fees, building inspection costs and loan application fees when buying a property, which can add up.

Over the past 25-30 years, Australian property has provided massive returns and many have reaped the rewards. The problem with property in Australia is that it has been incentivised as an investment, with tax benefits for those that buy and rent to tenants, which is why first home buyers are locked out.

Is rent money dead money? It really depends on your circumstances. Buying property is just one option of many when it comes to building wealth and securing your future.