Rent vs Buy House – Is rent dead money?

stevetaylor

9 years ago

I have been asked by a person, is the saying “it is dead money to be paying rent” correct? The answer to that is yes and no. Generally speaking, unless you are financially astute, it is dead money, paying rent all your life.

However, it is not dead money paying rent if you, in turn, own property that you are renting.

To clarify … many of my clients own several residential investment properties in some of Brisbane’s best suburbs but pay rent where they happen to be working.

How does that benefit them?

Many people like school teachers, policemen, and mining engineers will live in a variety of areas during their working life. Many buy and sell a house every time they relocate and this makes no sense. They are far better off buying a residential investment property in Brisbane and rent where they are working. Every time you buy and sell it costs you money.

My clients do not buy and sell, but buy and accumulate.

An example

Just over 3 years ago, a client came to see me. He had his daughter booked into a private school in Brisbane to start in 2016. He planned to leave Emerald in December 2015.

I advised him to do the following: I had him list his Emerald house for $550,000 with a local agent with a lease back for 3 years @ $550 per week rent. I then built him a beautiful 5-bedroom home in Brisbane for $475,000, which we rented for $475 per week.

So he sold his house in Emerald for $550,000, bought a better home through me in Brisbane for $475,000.

However, it gets better, whilst he could claim nothing off his tax with the Emerald house, he was claiming $20,000 per annum off his tax with the Brisbane house.

What are the relative values today?

The Emerald house would be lucky to be worth $300,000 while the Brisbane house is now worth $500,000.

How does that benefit them?

An example

What are the relative values today?

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