Why Would I Never Buy My Own Home?

BY CHRIS GRAY, CEO, YOUR EMPIRE

I currently own around $25m in residential property but I don’t live in my own home. I haven’t lived in my own home for over 25 years and I’m not sure if I’ll ever live in my own home. Why is that I hear you say? I rent. I’m proud to rent and I think I’ll be a renter for the rest of my life.

There’s always been a stigma about renting and an assumption that only ‘poor people’ rent. But that’s not so true these days. There’s many of us that choose to rent and here’s some of the reasons why.

1. My money works harder elsewhere – I typically buy $1-2m units as investments in Sydney’s blue-chip suburbs and typically get 3-4% rent.

2. I can rent a more expensive home for cheaper – I typically rent $5-10m homes for around 1-2% rent. Expensive properties rent for a lower percentage than median priced properties as there’s a small market that can afford them and so the price falls.

3. $2,000 a week sounds like a lot of money to pay out in rent, but if that gets me into a $5m home and then I buy 5 x $1m properties instead that rent for $750/wk each, I get $3,750/ wk coming back in. Both ways I own $5m of real estate but by renting I get an extra $1,750/wk which equals $91,000/yr.

4. If all the properties I own are investment properties, it means that all my mortgage interest, strata fees and other expenses are all tax deductible whereas interest on a home loan isn’t.

5. When you sell a home, you don’t need to pay capital gains tax which is a major saving compared to selling an investment. However, if I never sell my investment properties, I never pay the capital gains tax anyway. My mother has lived in the same house for 50 years and so would you rather it be capital gains free on death or tax-deductible interest for the 50 years of your life?

6. Every time we move, we move to a better property in a better suburb and so if a landlord kicks us out, it’s a positive feeling.

7. Whenever we move, we go off on holiday and let the removalists pack, move and unpack. The cleaner then comes in and makes the beds and organises everything in the kitchen. The $91,000 we save every year is more than enough to pay for a removalist, cleaner and a holiday.

8. They say you can’t do what you want with a rental but is that really true? What landlord would complain if we said we wanted to repaint and recarpet at our cost or if we wanted to change the light fittings or door handles. If we’re saving $91,000 a year, who cares if we spend $5,000 - $10,000 on improvements.

9. Rent money is only dead money if you don’t invest the equivalent elsewhere.

10. Having a portfolio of a number of median priced properties in different suburbs is not only diversified, it’s generally more steady and solid as there’s always a number of buyers and renters that are interested in the properties as they are affordable. Having one very big expensive property is much riskier as it can take months or even years to find a renter or buyer if you’re chasing a certain price. Banks are much more cautious on lending as much money on a single property, which confirms their attitude to risk.

The reason this works so well is the arbitrage of rental yield between median priced properties that are in high demand and expensive properties that are in low demand.

Sure, there are also some tax deductions, but tax is always a bonus, not the reason we rent or invest.

Choosing to rent rather than own your own home is called Rentvesting – invest where you get the highest return and then live where you get the most emotional satisfaction