Is Your House Really An Asset? Why We Choose To Rent Instead

ORIGINAL BLOGGED BY THEBOOKRUNNER.COM - Stephen Turner

​Before I get in to the nuts and bolts of this weeks blog, I’ll quickly update you on what I’ve been up to over the last 7 days; Marathon training of 13 miles (as you do before 10am on a Saturday!), Antenatal classes (me & the Mrs), fell asleep during the relaxation practice in our hypnobirthing class (clearly I’m well practiced!), continued work towards the 4 hour work week and hit a few stumbles (I’ll get on to this in next weeks blog). Oh, and managed to handstand for 9.5 seconds (the half second is all important).
 
Now on to the nuts and bolts part.
 
We are often asked why we rent our home instead of buying, especially as we sold our first home that we owned, invested in property, but then moved into rented accommodation. Following a comment on my last blog, plus the many people asking us so often why we rent, I thought I’d answer this question in full in this week’s blog.
 
The main reason of ‘why rent’ over buying is financial, which I’ll detail later, but here are my top 5 reasons for renting:
 

1. Freedom to move – it is a lot easier to move around when renting without the need to sell and re-buy
2. You can generally get a nicer place – depending on budget
3. Hassle-free – don’t need to worry about house/flat maintenance as the landlord deals with this (in most cases)
4. Keeps you grounded – if you are a landlord and self-managing properties, then being a tenant yourself keeps you grounded to the needs of your tenants (treat people how you want to be treated)
5. Financially better off – if you instead invest the money you would have used to buy your home. See below the maths.

 
There are some downsides too, and it depends person to person and what is most important to them whether these downsides outweigh the upsides:
 

1. Lack of security - may need to move if the landlord decides to take the property back, sell or is repossessed
2. Lack of personalisation – usually you cannot decorate as much as your own home, although you usually can negotiate to some extent
3. Risk of a bad landlord – we have not experienced this but I know it does happen and properties turn into disrepair

 
Now on to the financial element of ‘why rent’. I’ll try to keep this simple with rounded figures.
 
So, let’s say you have the choice of whether to buy or rent:
 
Buying your own home
25% deposit of a property (£240K) is                            £60K
Estimate of buying fees and stamp duty, etc                  £5K
The house is ready to move in to so no refurb                £0K
Total capital outlay                                                        £65K
Mortgage (on interest only) £600 per month
 
Investing in a buy to let property
 
Ok, so let’s now look at putting that money into an investment property instead.
 
25% of a house needing work (£200K) is                   £50K
Estimate of buying and stamp duty etc                       £5K
Refurbishment costs                                                  £10K
Total capital outlay                                                     £65K
Mortgage (on interest only) £500 per month
 
The type of property will depend on how you can let it out, and the monthly profit can range from £250 to £1000+ after all costs. When we sold our home and invested the money instead, we achieved £1000 profit as we were letting it out as a HMO (house of multiple occupation) and self managed this.
 
Your home living budget is now the £600 (which you were initially going to pay in mortgage payments) plus the £1000 you are making as profit from your investment property.  £1600 can then get you a really nice rental property along with a few hundred pounds change each month.
                                   
What I have not included are property price rises on either your own home or investment property, or the additional profit you make from adding value to the investment property from refurbishing it. These are nice bonuses, but cash is king!
 
The other benefits of investing:

• If you have a lower amount, you can find a cheaper property in a different location
• You can partner with people or find investors to find the money required for an investment property
• You create an income that isn’t trading time for money (especially if you get agents to manage your property or start building a team to manage them for you)
• “Your house is not an asset, it is a liability” - Robert Kiyosaki. When you invest in property, you are buying an asset (something that makes you an income) rather than a liability (something that costs you)

 
That pretty much sums why we chose to invest in property and rent ourselves.
 
I hope you found this interesting, any questions please ask in the comment box.
 
Thanks again for reading,
Steve