1300 1ADVICE
Book your free
appointment
Bryce Holdaway Blog post by Bryce Holdaway

Is Rent Money Dead Money?

Is it true that Rent Money is Dead Money? Bryce Holdaway explains the one exception to the rule, which can actually work MORE in your favour, in his latest How To Video.

Watch time: under 4 mins. Read time: 2 minutes.

 

Today I want to talk to you about a common question that comes up, “Is rent money dead money?”.

My suggestion is that this is a very good marketing message from builders — because they want to sell you brand new stock! And if they sell you the myth that “rent money is dead money”, well, then hopefully you’ll believe it and you’ll start to buy their stock.

The question should be… “Is it actually real that ‘rent money is dead money’?”.

Personally, I would say to you that rent money is only dead money if you don’t invest the surplus you get from renting. By way of example, let’s have a look at two scenarios…

 

This scenario here is Rent, and this scenario here is Buy.

Clearly, if you were to rent a lifestyle over here, it’s much cheaper because the rent you’re being charged is less than the mortgage repayments. And over here, if you were to buy, you’ve got to pay rates as well. So there’s a lot of extra expenses — and hence, there’s a difference you save by renting instead of buying

So the question, “Is rent money dead money?” becomes it is IF you don’t invest this surplus.

This scenario is typically more common with Generation Ys than the Baby Boomers simply because Generation X and Generation Y don’t want to give up their lifestyle and move further out to where they can afford to live. Hence, the term “rentvestor” has come into the vernacular over the last 5-10 years.

Basically, what Renvesting means is, “Hey, I’ll go and find the location where I’ll have a great lifestyle and rent there, and then I’ll use my money to buy an investment grade property in another suburb. This way I’m actually trapping the surplus that I save from renting versus buying and putting it into another asset — it could be shares, it could be some other form of business that I’m interested in or it could be property.”

For me, the question really comes down to, “Do I want to rent my lifestyle or do I want to buy my lifestyle?” Because there’s a huge difference.

 

One thing to think about buying real estate is you’re actually renting, in a way, the dollars from the bank in the early part of the loan.

If you think about it, in the early days what you’re paying is largely interest — it’s not until you get to the end of the loan where you start paying back some of the principle. So you principally are renting, in a very abstract way, from the bank. So, it’s really a comparison of, “Do I want to have the lifestyle I want or do I want to buy the lifestyle I want?”

The important thing is this: if you are not trapping the surplus and putting it to good use somewhere else, in my opinion that is where rent money can be dead money. However, if you are buying other assets with the surplus, well then, rent money could definitely be a very, very good strategy for you to do in your circumstances.

 

The conclusion is very simple — are we talking about a full stop, or are we talking about a comma? Because Rent money is dead money.”  I would agree with, but “Rent money is dead money, unless you’re investing the surplus in something else” makes a huge difference!

So next time you’re thinking about whether or not rent money is dead money, ask yourself this, “Am I trapping the surplus and am I putting it to good use somewhere else?” If you are I think a great lifestyle really important to you, then perhaps rentvesting is something you should consider. Lots and lots of people are actually using this as part of their strategy to build wealth while still enjoying your lifestyle now.

Connect with Empower Wealth:
Get in the know - Subscribe to our Newsletter