Why I’m Renting for the Rest of My Life
(Unless I win the lottery)
Owning a home is a highly emotive issue. It’s not just about an investment opportunity. It’s about living. It’s about having a home that’s yours, a safe haven for your children. These things change over a course of a life, at least they did for me and I think for others too.
While it was very true for me to have a safe haven and security of a home which I owned for my children, suddenly it wasn’t. They were all grown up, doing their own things and living elsewhere. I was left with a house to clean, no job, and no way to pay the rates (property taxes) on the house.
With no prospects (multiple rejections a month) it became clear to me that it was time to do some maths.
So it worked out for me that to sell the house, pay off all the debts and release the equity, I could purchase a business and make significant cash to put towards my retirement. This meant finding something really cheap to rent which was less than my mortgage payment and I was lucky enough to do so.
Here are the figures that tipped me over the edge in my decision:
Rent for the next 25 years (allowing for 3% increase each year) $651,414.00
I know it seems like a lot of money down the drain doesn’t it? But wait a second, it’s housing me and protecting me and allowing me to live so it’s not completely down the drain. Here is what happens if I ‘invest’ that sum.
Purchase property at $651,414.00
Interest over 25 years $406,707.00 (based on fortnightly payments alone)
Total cost $1,058,121.00
Now I know you’re thinking yeah but if you paid it off quickly….. So let me put some other figures in the mix:
Rates (Property Taxes) over 25 years with 3% increase year on year $119,128.00
(based on my average rates of $750.00 a quarter)
Maintenance which I allowed for the same as rates $119,128.00
TOTAL $238,257.00
So the property in 25 years time needs to be worth $1,296,379
Now some of you will say, well sure it will be 25 years is a long time right? Wrong. Property does not go up all time time. There are highs and lows and corrections. So you are taking a gamble that in 25 years the market will be fantastic, your house will be in demand and you will be able to get this kind of price for it. I would suggest listening to people around you, looking at wage inequality and insecurity and then wonder to yourself, Who will have that type of money? And if they do, what would make your house the best choice above all the other of thousands and thousands of properties that will also be on the market at the same time as people start to enact their retirement plans?
I know you’re also thinking that the house which you spent your life paying off is the legacy you want to leave to your children so they can have something to start their lives with. This is admirable and a sentiment shared among many. It may be that they can sell it for something if you die but I think gambling on the big payoff may not be the best course of action.
Let’s have a look at some more maths which became more attractive to me and why I decided to rent for the rest of my life (however long that is)
Rent 25 years at current rates with 3% yearly increase factored in $651,414
Taxes $0.00
Maintenance $0.00
Save the Taxes and maintenance costs @4% interest x 25 years $276,505.00
Save the difference in mortgage payments
Mortgage payment on $651,414 = $882.00 PER WEEK
Rent @ $365.00 per week (with 3% increase) $154,454 *
TOTAL SAVINGS $430,959.00
So that is basically half a million give or take in the bank on top of whatever else I have managed to save.
So for me, it’s worth it. I would rather have my kids have access to cash than have to deal with clearing out and selling my house, losing some value of it in death taxes etc. I don’t know if you’ve ever had to do it, but I have had to do it three times and it’s awful and it’s not something I want my kids to have to deal with. I would much rather leave them money in the bank.
I know this approach isn’t for everyone and it is a highly emotive area and we can debate the ‘worth’ of these figures versus property valuation until the cows come home. Here’s the thing for me – speculation of what your property may be worth is just that – speculation. Maths and compounding interest is maths, it doesn’t speculate, so I chose maths.
If you enjoyed this post please share with your friends.
*this was based on conservative compounding because my brain couldn’t quite get excel to do what I wanted this early in the morning but you get the idea
Stay In Touch
