“I’d rather pay off MY mortgage then some body else’s mortgage”….
Sound familiar? This usually comes up in conversation whenever the topic of ‘Rent vs Buy’ comes up. Renting usually gets a really bad rap, so I’m here to share our experience, perspective, and hope that you take away just a little bit more then if you had skipped past this article.
Ok, so typically, there are two options you have to choose from if you want to live anywhere with a roof:
- Buy a house and pay off a mortgage, or
- Rent a house, and pay rent.
Mrs. MoneyPlant and I have only just purchased our first home, but before we did, we happily rented for around 5 years. We had more then enough to afford a deposit and buy a house during this time, but renting suited our lifestyle, and there can be a lot of benefits to renting, a lot of which we were taking advantage of. I always got asked… but why are you renting and paying off someone else’s mortgage, wouldn’t you prefer to pay off your own mortgage?
This is a weird question as it really doesn’t matter where your money goes. If you have a mortgage then that’s a VERY high chance that your paying the bank some serious interest that’s not going towards paying off your mortgage. What’s the difference of giving money to someone else towards their mortgage, and giving money to the bank for their profit margin? *Shrugs*, same same.
When we paid rent, we paid an ‘all in one’ price per week.
We paid a fixed price of $340 a week, every week, and we were renting really close to Brisbane CBD (At Annerley, so around 3.5kms). When you buy a house, depending on a lot of factors of course, it can be pricey. There can be unexpected repairs, bills, council rates and a tonne of other ‘stuff’ that can pop up. I’m not saying it’s bad, but it can be tricky to manage if your cashflow is tight.
Renting is generally cheaper then buying, but I think the reason that the general perception in our society is ‘anti-rent’, is simply because most people aren’t disciplined enough with their money.
When you are paying off a mortgage, you’re effectively signing up to a forced 30 year savings plan. When you’re renting… you’re not signing up to a forced 30 year investment plan, so if you don’t save/invest the difference, then at the end of 30 years you have… well nothing. This is where the anti-rent perception comes from (at least from a financial point of view)
When you buy a house, your repayments are at least going towards paying off the capital of your property. After 30 years you WILL have something to show for it.
We rented for nearly 5 years.
Do we regret it? Absolutely not.
We had affordable rent, and our surplus cashflow went straight towards savings and investments.
Lets take a look at the numbers.
- We moved in to our last rental in February 2017
- Our net wealth was $350,781
- We left in June 2021
- Our net wealth was $931.587
- We were there for around 225 weeks
- We paid a total of $75,600 in rent
During this entire time, we were ‘rentvestors’.
I’m not sure where the term comes from, but during the entire 5 years we were renting, we were ‘rentvestors’, which means we were investing alongside renting, actively choosing not to buy our first home and instead, enjoying the benefits of renting while continuing to build our wealth.
Honestly, Australia is kind of weird about NOT having your own home. Every time I had to tick the ‘rent’ box on a survey or online form, I almost wanted to say.. “Yeah, by choice”.
I saw it as a generally negative sentiment, it’s like society was saying…Oh… you can’t afford to buy your own place, that’s a shame, I guess you’re a renter… There is nothing wrong with renting.
- If you’re a ‘renter’ and reading this, then it’s all good, enjoy the flexibility and the not having to replace the hot water system out of your own pocket when it breaks down (btw, get familiar with the rental tenancy act, it’s well worth it, but that’s another story)
- If you’re a home owner, then it’s all good, enjoy the security and property growth.
It’s important to live within your means.
Spend less then you earn, and invest the rest. Simple
Was renting dead money to us? No
Were we paying off someone else’s mortgage? Probably, who cares.
Were we better of buying our own place instead of renting? Personally, I think it was $75,600 well spent. $17,680 a year in rent was a pretty small expense, and it really allowed us to focus on saving our money. We never had to worry about leaks or big expenses, our cashflow was extremely predictable and consistent, and that allowed us to invest. Besides… Do you think that your mortgage repayments are going solely towards your property equity? Half of our current repayments are going straight to the bank as interest, which I consider ‘dead money’ way more then our rent.
Again, I’m not saying one is better then the other, it’s really hard to compare the two because there are so many other factors at play. We were fortunate enough that the owners were lovely and decided to go private with us, cutting out the real estate agent. This meant no inspections, and they were making more money so they never felt the need to raise the rent while we were there.
So, to rent, or buy?
It’s up to you, there is no right or wrong answer, all that matters is that you’re moving forward, $1 at a time.
Grow, live and invest.