June 01, 2015
Renting may be a smarter option for you...
Australians have always had the dream to own their own home, pay it off, and live in it in retirement. However, is this always the most financially sensible option?
Saving for a deposit, buying your home, paying it off, and living mortgage-free in your later years may not be the smartest way to do it these days.
More people are starting to opt for a cleverer way to plan for retirement – by building up a property portfolio while they continue to rent. The property investments will provide them with a steady stream of income in their retirement.
One of the reasons it works well financially in the current market is because you can take advantage of Australia’s negative gearing rules. This means you pay tax-deductable interest on the investment properties rather than non-tax-deductable interest on your place of residence.
A second reason is, that on a cashflow basis renting is cheaper. Mortgage rates are generally higher than rental income, and general costs associated with the mortgage are paid by the landlord. The landlord pays for all repairs and maintenance, rates, stamp duty, and annual costs like pest control and fire-alarm servicing. These costs are however tax-deductable – which they would not be if it was for your own place of residence.
Lastly, a third and great reason is lifestyle choice – you can choose to live in your preferred suburb or location while renting. You can live in an amazing property in an area which you could not afford to buy – because generally speaking you get more for your money when renting; especially if it is a suburb in the upper end of the property market.
Investment properties are selected due to their attractiveness as an investment, not because they are somewhere you’d like to live. For example, central CBD locations are great from a lifestyle point of view, but do not generally make a wise investment choice due to the risk of oversupply.
Investing in property works well long-term, particularly as prices rise at a moderate rate which they are currently. Holding onto property long-term means you ride out the dips in the property market. Which means renting is attractive because you can make short-term moves to suit your lifestyle ie. more flexibility if you need to move for a job or have children and need more space.
Our changing lifestyles these days means that more people are moving, more often. Long-term property investments will not be affected by these moves if you are renting.
The money saved while renting means you can divert the extra cashflow into property investments.
If you like the sound of this, or would like to find out how you could purchase your first investment property, please call us.
Mortgage Choice Stafford is your local mortgage broker, assisting with all your finance needs.
Call Maree now at Mortgage Choice Stafford to discuss your finance needs: 0421 866 700