Renting Not Owning
Some of the major influencers out there recommend renting and not owning property. In this blog, our Managing Director, Sara Newson is going to give her opinion starting with the reasons it is said that your home is not your asset, then add a few more for good measure…
Made famous by the one and only Robert Kiyosaki in his book ‘Rich Dad, Poor Dad’ and his teachings and regurgitated by many ever since. My question is do people ever question and sense check what they hear, no one is perfect and even the ones that we see as OG’s in their own right are not always right.
While I am not by any means saying that this statement is incorrect, I am absolutely going to contest it to always be the case, I see exceptions…
Assets – Put money in your pocket, liabilities take money out – so renting your abode isn’t taking money out of your pocket in the same way owning it would? Secret – Your home can put money into your pocket.
Capital – Utilise the capital to buy income generating assets not to lock it up in your home. Buy, add value, refinance to increase the value (equity stake) and you’ll pull out your original invested capital and you have your home for no £0 and your capital released to go and buy more assets. This does take time so you will have to spend 6-8 months cycling the money in your own home rather than buying an asset but you are then in possession of your home, paying down your mortgage each month instead of paying money into a rental property.
Rent – Cheaper than paying a mortgage – absolute myth! Landlords and investors have to pay the mortgage plus cover other costs so if the rent is less than the mortgage paying those landlords are going to be out of business quickly. Plus, investors pay higher mortgage interest rates than homeowners.
Greater Freedom – Possibly one I can’t argue but really how often are you planning to “have a change of scene”? It’s not going to be that frequent even when renting. Once you have a good job or an established business it’s not that likely you will be moving around (one you won’t have the time for it!), plus once you have a family, schooling generally locks you in one place. There are very few that sit outside of this, we aren’t all The Cardone’s.
Capital Appreciation – If you research before you buy and buy in a location with good average annual growth you will benefit from the growth. This is a % growth of the whole value of the property, not just the small deposit you have invested in the property.
Debt Depreciation – Your mortgage depreciates in value annually with the rate of inflation.
Flexi Mortgages – These can be a great way to save and draw down the capital you have already paid off to buy more investments or investment property.
Turning your home into an income generating asset isn’t rocket science. Most aren’t willing to do this but it really does pay to be open minded, especially in your 20’s and early 30’s before you start a family (if you plan to at all).
So how do you turn your home into a “something that puts money into your pocket” well let’s see – rent a room (or two), lodgers or Airbnb, can you convert part, section part off, build to create a self-contained annex?
Watch out for our next blog on the topic of renting not owning.