Dead dollar rent

Some people argue that renting a home is a better financial proposition than buying one.

“They say that renting leaves more disposable income,” Bellarine Property managing director Christian Bartley said.

“But for most people the lifestyle benefits are relatively short lived. Real spending power decreases over time because rents and prices go up faster than incomes.”

Mr Bartley said that by contrast people who are paying off a mortgage end up increasing their spending power.

“The equity in their home grows as property values rise and their repayments accumulate.

“This pattern of income availability suits people who plan to have children at some stage because it produces more disposable income at the time when their expenses peak rather than when they are young.

“At the same time they have the security of a permanent place to live.”

Mr Bartley said that many renting singles or couples without children are reluctant to make the lifestyle sacrifices necessary to buy their own home, but often they are merely postponing the sacrifices.

“As real disposable income shrinks they will find themselves moving to a smaller or less well-located property to avoid spending a bigger proportion of their income on rent.

“And if they are living up to their income they will find it hard to change their lifestyle to make way for new expenses such as children.”

According to Mr Bartley, high income earners are not exempt. “Wealth is not the automatic result of a high income.

“It depends on lifestyle choices. Conversely people on low incomes can build wealth.

“Compare two couples on an average income with around $50,000 in the bank.

“Couple A go on a $5,000 holiday to Tahiti and buy a new car for $45,000, keeping it for seven to 10 years, spending their income on rent and lifestyle.

“Years later their only asset, the car, is worth little or nothing – a few thousand dollars.

“Couple B buy an older but reliable car for a few thousand dollars and use the $50,000 as deposit on a $500,000 home.

“In the same period as Couple A’s car value dwindles, their home doubles in value to $1 million.”

Mr Bartley said that even if Couple B pay off the interest only and not the principal of the loan, their net wealth will be $450,000 – their original $50,000 deposit plus the $400,000 increase in the value of the property.

“Furthermore, at some point in this mortgage re-payment period they will be able to borrow on their equity to buy a new car or start an investment portfolio if they want to.”

For further information, contact Christian Bartley on 0410 695 325, email [email protected] or visit bellarineproperty.com.au