Property investment tip 19: Is rent money dead money?

I’ve met many people who believe that rent money is dead money.

They think that paying rent towards another landlord’s mortgage is a waste of money – especially when their hard-earned savings can be put towards their own deposits.

Many of these people live with their families until they can afford to buy a home.

Thereafter, they will move into the first home they purchase, never exploring the option of renting out their property to make a rental income.

But is rent money really dead money?

I don’t think so. Let tell you why.

If you have a stable income and no major life commitments, such as raising children or looking after an ill relative, etc, you should consider renting out your first property instead of living in it.

My husband and I purchased our first investment property when we were 26. We rented our property to tenants for $1,600 a month, whilst we lived in a cheaper shared accommodation for $1,000 a month.

This enabled us to save $500 a month, or $6,000 a year. Though it’s arguably a small amount, it was a new source of income which, in addition to our two employment incomes, helped us to save for a second investment property three years later.

We did the same thing to our second and third investment properties; they were rented to tenants so we could generate new sources of monthly income.

So can you see a pattern here?

By not living in our properties at a time where we had no major life commitments, we were able to generate multiple income streams.

This is why I don’t believe rent money is always dead money.

Rent money becomes dead money when you live beyond your means, such as renting a place you can’t really afford, or renting excessive space you can forego.

Now, in order to adopt the same investment strategy as mentioned above, you need to buy a property with a good rental yield. I’ve discussed how you can calculate the rental yield of a property here.

Additionally, the property should be positive geared, meaning that the rental income you receive should cover all the mortgage repayments and expenses, so you make a profit each month.

Bare in mind, to qualify for a government first home buyer grant, you may have to live in your property for a certain period of time before you can rent it to a tenant.

So do you think rent money is dead money?

Please note, though I own a few properties, I am not a legal, financial or professional property expert. I’ve written this post to share my personal experiences and would love to hear your opinions and views.

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