Renting V’s Owning
As most of you know, one of the topics I cover in my financial presentations is Renting V’s Owning. It’s not often raised in the media although I’m seeing more articles about it over the past few months. One in particular is an article written by Chris Gray who is the host of Your Property Empire on Sky News business channel.
He uses an example for high income earners which I’ll highlight below and the reason for this is that he said they are socially not able to accept the benefits of renting over owning and having a mortgage. As the old saying goes, “Rent Money is Dead Money”, but isn’t interest to the bank for your mortgage dead money as well? What if you had the option to borrow $1.5m, would you buy a home for that amount or rent and buy 3 x $500k investments?
Buy your own home for $1.5m and assume an interest rate of 8% as this is the long term rates over time. So based on these figures the interest payable to the bank is $120,000 p.a.
Instead you buy 3 x $500k investments that rent out for about $400/wk and you can then claim any loses as a tax deduction. You can now go and rent a $1.5m property for about $30,000p.a. in the current market. The loan repayments on the 3 investments are still $120k p.a. but you’ll get about $60k in rent from the 3 of them. So the cost to you is $60k p.a. but as you’re a high income earner and in the highest tax bracket you’ll get $30k back at tax time. So the overall cost of the investments will be $30k p.a. plus the cost to rent at $30k p.a. so that’s $60k per year.
So for the high income earners it’s actually about $60k cheaper per year to rent and invest. The examples I provide in my presentation are not quite as high in income and investment purchase prices but the theory is exactly the same. There are some social implications with this option but some of them can be easily resolved if you have an extra $60k per year to spend on the family.
If this is something you’d like further info on or you’d like us to do some specific figures for you please give us a call.