There is a terrible stigma that if you rent, it must mean you cant afford to buy. This video explains why the smartest property investors rent instead of buying.
In today’s little video, I want to share with you, I guess, a philosophy that a lot of the most successful investors I know use in terms of how they go about living in the place that they want to live.
Often there’s a really huge stigma in Australia, in particular, about renting versus owning the home that you live in. A lot of people feel an emotional tie to wanting to own the home that they live in.
I want to share with you two underlying reasons why the most successful investors I know actually believe that you should always rent your own property.
The first issue is that when it comes to how much money the banks are prepared to lend you, or in other words, your borrowing capacity. If you think of it like a glass of water — if you use a part of your borrowing capacity to buy your own home, effectively what you’re doing is you’re using a certain part of your borrowing capacity.
If you choose to rent, however, that allows you to keep the full borrowing capacity or the full volume of that glass completely empty and therefore, allows you to go a little further with what you can borrow to invest rather than if you owned your own place.
The second really important consideration that a lot of these investors have in the back of their mind is that when you rent, effectively, in most instances, even as the value of the property goes up, the relative rent drops or the yield drops. What that means is you can go out there and you can rent a super-duper beautiful house but only pay a fraction of the cost of what your mortgage would be if you’d own that. What that means is that in terms of managing your cash flow or optimizing your cash flow, what you’re actually doing is freeing up cash flow to, again, invest in property for your portfolio versus using it on your day-to-day lifestyle.
Now, obviously, the decision to own versus to rent is partly emotional so I completely understand if there are those of you out there, like myself, who like the idea of owning your own home. What I hope this has done is given you an insight into why there really should be no stigma around this concept of renting as opposed to buying.
I hope you found that really useful. What I’d love is if you could write any comments below this video or if you enjoyed it, please share it or give me a like.
Thanks so much. Salena Kulkarni, Phoenix Wealth Group.