Is rent money dead money? Many people think so. These people believe that paying rent towards another landlord’s mortgage is a waste of money. They also believe their hard-earned cash should, instead, be put towards saving for their own deposit.
Many of these people will live with their families until they can afford to buy a home. Thereafter, they will move into the first home they purchase. But, they will never explore the option of letting their property to make a rental income because rent money is supposedly dead money.
Is rent money 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, 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. In this time, we lived in a cheaper shared accommodation for $1,000 a month.
Renting elsewhere 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, in addition to our two employment incomes. Having three sources of combined income helped us to quickly save for a second investment property three years later.
This was our initial investment strategy. Buy a property. Rent it out. Use the rental profits to save for another investment property. Repeat the cycle.
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 believe rent money is not always dead money.
Rent money becomes dead money when you live beyond your means. For example, renting a place you can’t really afford, or renting excessive space you can forego.
When rent money is not dead money
To adopt the same investment strategy, as mentioned above, you need to buy properties with good rental yield. I’ve discussed how to calculate the rental yield of a property here.
Additionally, the property should be positive geared. This means the rental income you receive covers all the mortgage repayments and expenses, so you make a profit each month.
But, bear 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 out.
So, is rent money dead money?
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