Want to Burn a Million $$$$ - Just Keep Renting

Want to Burn a Million $$$$ - Just Keep Renting

Originally published in Keeping It Real Estate Edition 3

Do you want to know how to make $1 million dollars? I am going to tell you now.

From my experience it’s a simple sum to do. Take your rent, add 2% on average per year increase and compound it over 30 years. Let’s say you are paying $450 per week currently and you stay renting in a similar priced house for 30 years, you will pay $1,312,387 over 30 years.

What will you have at the end of that period? Nothing but the satisfaction that you have paid your landlord’s house off.

If you bought the same house that you are renting, for $450,000 (Brisbane prices) you would pay $270,000 in interest (assuming a 10% deposit). The Queensland Government with throw in $15,000 if you are a first home buyer. You’ll also have no or significantly reduced stamp duty savings on your first purchase, an added bonus.

Have I got your attention now? Let’s consider this scenario.

Silly Sally rents for 30 years and pays $1.3 million in rent. Smart Sue buys the house in the same street for $450,000 and pays $270,000 interest over the life of the loan.

At the end of 30 years Silly Sally is moving to her new rental home to pay $1,430 per week in rent. Her rent has been increasing by 2% every year, while Smart Sue has been paying less and less interest as her loan diminishes. 

Sally after 30 years of paying her rent on time has no money and no asset she can sell.

Sue has $732,000, financial independence and is considering a trip to the south of France. While Sally has to keep paying higher and higher rent, moving from rental to rental trying to keep her rent down, Sue’s weekly repayments of $432 per week stay the same, assuming interest rates do too.

If Sue pays the same as Sally pays in rent, increasing her repayments by 2% per year she will pay off the house in 12 years. Yes! By year 12 she owns the house and pays no more rent/interest.

Think about who is going to be doing all the travel - is it Sally or Sue?

Sally is left dreaming of that luxury holiday in Italy whilst Sue is actually living it.

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