We’ve all heard the phrase “rent is dead money”. Usually it is on the side of home ownership in the rent vs buy debate. But is rent really dead money do you get caught in a “rent trap”? Is it more worthwhile to invest in a home to live in or are we better off paying a landlord in exchange for a shelter over our heads. It really does all come down to your personal circumstances and the choices you decide to make with your money. Rent is often viewed with a negative connotation, but is there much more to it than this?
When we think of rent, many of us think of the “rent trap”. That is, the family caught up renting, they can never save enough for the home deposit, forever paying off someone else’s mortgage. Having a negative perception of rent is not only one way to bring you down, but it couldn’t be further from the truth. Think of it this way. When you decide to rent rather than saving up for a deposit, you are in fact paying paying a flexible rate for your accommodation as well as any repairs, rates or taxes which may be on the property. This means you can use the remainder of the money elsewhere, the opportunity cost of buying a house.
Seeing rent as dead money is usually a misconception spread by real estate agents to have more people purchasing homes to live in rather than renting. The fact is, paying for your accommodation every week is no different from purchasing any other product or service. The service is somewhere to live, maintenance taken care of and flexibility to move at the end of the lease. You wouldn’t suggest that the petrol in your car is dead money or the clothes you wear. Just because someone else owns it, doesn’t make it any less valuable to pay for.
Purchasing the family home has its own benefits, such as being able to take advantage of capital gains and have somewhere to truly make your own. However, the family home can also be seen as a liability. Some would say it is an asset, but this all depends on the approach you are taking to your investments. The home produces no income and can take some time to build up equity to be used to purchase more properties in the portfolio. Meanwhile, renting and purchasing investment properties, also known as Rentvesting, allows you take approach your property investment as a business, purchasing income producing assets, while leaving your personal life free from mortgage debt on your home.
Whether you decide to rent or purchase the place you live in, one thing needs to made clear, rent is far from dead money. It all depends on personal preference and investment objectives. Renting is often the best decision an investor can make, deciding to leave their investment life and their personal life separate when dealing with the banks.