How to make renting a good investment?
Renting is never considered an investment and on its own of course it never can be. But the whole reason RentiBuy exists is to show that with the right technique one could achieve superior results in certain markets by keep renting and using the money properly than buying a house.
What are these methods?
Before we jump into it, it's important to remind you, this site is not an investment guide and never intends to be such. Take these as guidance and read more on the areas that interests you to gain enough confidence.
One of the common criticism of renting is that you don't build equity over the years which you do by paying a mortgage. Although this is very true in most cases but doesn't have to be. You can still build even more equity over the years if you do it right.
In many markets renting will actually cost you less than buying the exact same type of house or apartment. If that's the case you can spend the remaining amount (together with the money you would spend on a downpayment) to build an investment portfolio that matches your risk appetite. The younger you are the more aggressive you can be which can be very beneficial over a long period.
Take a look at an example
Let's say you rent a house for 1200 and you can buy a very similar, in the same neighbourhood for about 280000 which would translate to a monthly repayment around 1200 or so (assuming a 3.6% interest and 30 years term). Sounds good, doesn't it? For the same amount of money monthly you can own a house instead of renting. However with all the extra costs your total cost of ownership is actually closer to 1500 / month.
Now imagine if every month you save that 300 euros while renting and investing into a decent portolio (yielding above 9-10% / year). You will have more money at the end of the 30 years mortgage term than if you had been paying a mortgage and now you would sell it. To phrase it a bit differently
After 30 years you could buy the same house for cash and still have just shy of 200 thousand left in your account.
Not a bad deal, is it?
What can you invest in?
Pretty much anything that will give you a better yield than a saving account:
- Bonds (corporate or goverment)
- Private equity
Common wisdom says that you should have 110 - your age in stocks and the rest in fixed income investments such as bonds.
Positive cash flow
Focus on present
With building equity we are focusing on future gains but there is another important factor: the present.
Another way to look at renting as an investment opportunity is to take advantage of the positive cash flow benefit. In many cases your renting spending could be lower than the total cost of ownership of the house and that translates to more money every month. If you're tight on monthly budget or you want to enjoy the present more without worrying about the future that's one easy way to do it. Therefore you can consider renting as an investment in your present .