Why Rentvesting Beats Buying Your Dream Home

[00:00:00]I am going to be giving you unequivocal proof that the strategy to buy as a rent vetor is more valuable than buying as an own occupied property using a 106% lending product. That means not waiting at all. I think by this stage having watched me you know the average Australian takes 10 years to save for a deposit which is $320,000 that goes towards your landlord before you start.

[00:00:26]In that same time, the average price of houses, specifically in New South Wales, over the last 10 years, has gone up by an extra $600,000.

[00:00:36]So, I'm not going to try to convince you buying today is more valuable than waiting because there is unequivocal proof that buying today saves you $1,15,000 purely on repairs to your rent and your landlord and in the cost of price increasing. I am talking about purely the rent vesttor strategy versus buying your own occupied today.

[00:01:02]Why I'm dealing with this headon is most Australians we deal with struggle to overcome the mental burden of going towards a rent vested decision even though it is the best financial decision for them. Because buying your own occupied property, it is very hard to build a portfolio thereafter. Because all your servicing, all your b borrowing capacity goes out the door when you have your own occupied. And more importantly, buying where you want to live places significant financial strain on the average Australian because generally where you want to live there is certain price pains that come associated with that. The demand drives the price up. So today is about buying where you can afford and living the lifestyle you want to live. So the top graph shows the owner occupied only purchase using 106% product which means zero deposit. In this scenario, you have basically gone from a $1 million purchase, which has a 1,60 component associated with it. And the mortgage debt reduces over 10 years to $98,000 and then eventually over 20 years $623,000 and zero. The property value starts at a million bucks and expands to 3.118 million bucks. So, your equity, although it starts negatively, consistently grows. But buying that dream house has a mortgage repayment allocation to it of $91,000, which means all your cash flow is being burnt through. Now, great news is is since I've recorded this, the actual mortgage payments have gone down significantly as we've renegotiated our debt warehouse. But it's good to go worst case because the Federal um um because the Reserve Bank is talking about interest rate increases. So we have to watch your space and give you the worstc case numbers.

[00:03:03]Now in the second scenario directly under we're talking rent vest up. What that means is you're renting where you currently are living the lifestyle you want to live and buying a property that is affordable for you. So yes, you're paying money to your landlord, but you are also receiving money as a landlord, canceling out that whole dead money expression.

[00:03:26]In this scenario, your cash benefit monthly starts off at minus 100 bucks and then minus $39 a month. So your out-ofpocket expenses are $100 and then eventually year five $300 at year 10 $1,500. But what's significant about this particular strategy is you're buying that property at a million bucks in year one, but your cash flow is such that in that first 10 years, you're paying off your deposit component. And at year 10, we're buying a secondary dwelling. So that's two properties, two properties by year 10. At that year 10 mark for two properties, you are paying now out of pocket monthly, including negative gearing, including all your tax depreciation. You are paying $1,500 a month for two properties. Whereas before, you were paying $91,000 for the house you were living in in one property. And after year 10 going to $87,000 a year.

[00:04:34]thereafter you are now paying that sum off using PNI over that period of time and then by year 20 with both those investment properties specifically having paid off a 10% of the first paid off 10% of the second after that period of time you're then going interest only after 10 years on each of those dwellings 10 years you're refinancing that debt interest only purely your cash flow benefit benefit in this particular scenario by year 20 is $7,565 every single month that these properties are paying you, including depreciation, including negative gearing. Your mortgage debt at that position at year 20 is $1.55 million, but your equity is $4.213.

[00:05:28]By year 30, you have a debt of 1.327.

[00:05:33]So we are not trying to pay off that debt considerably at all. We are purely maintaining that debt position in order to maintain the best amount of cash flow because by year 30 you have 4.9 in equity compared sorry 4.9 in equity which is 6.2 million property value and a debt of 1.327.

[00:05:56]Now you're saying 30 years, that's a long bloody time. But in that same time, you have compromised none of your lifestyle. Zero. You are living where you want to live. But in fact, someone is paying you $8,000 a month purely for the right to live in the property that you own. Now, on the next slide, I want to give a playby-play scenario of exactly what that looks like in terms of differences. The top one being asset value and the second one cash flow monthly.

[00:06:27]So if you buy today, you have negative equity day one of $60,000.

[00:06:33]But buying in 10 years, you have minus $31,000, but as a rent vetor, you are minus $38,777.

[00:06:43]Year five, you're 169 better off if you buy today. If you are just renting and saving, you're minus 156 in year five and you as a rent fester, you're 190 ahead.

[00:06:58]Year 10, 5,14, you are better off compared to year 10, 312,000. Remember, when you're saving, the average Australian takes 10 years.

[00:07:09]All that money is towards your landlord.

[00:07:11]Every single dollar. There is no upside.

[00:07:13]There is no variables in this. Your rent is your rent. But in the rent vest strategy, you're $747 better off. And I showed those workings in the previous slide. Let's get to year 20. Buying today 1.4 better off. Year 26 $668. If you're saving cuz remember you now put a deposit towards that asset.

[00:07:34]You have significant equity. But as the rent vetor, you've bought a secondary property. You're 2.684 million ahead.

[00:07:42]And the third year speaks for itself.

[00:07:44]4.9 compared to 3.1 compared to 2.118 if you wait. But it's all about the cash flow. Buying today, you're $7,67 bucks a month out of pocket every day for the first 10 years and then after that $7,35 a month worse off just paying that PNI as our own occupier. Whereas as a rent vetor, you're $101 off each month in year one. Year five, you're $39 a month worse off. And year 10, $1,500 a month worth off. But by year 20, they are paying you significant money. But if you see that previous slide, yearbyear, that $1,500 goes down and down before it goes up and up in your favor.

[00:08:32]This slide unequivocally proves with actual numbers that your cash flow is significantly better. Your asset is significantly stronger, but also your lifestyle is not compromised at all. And I will show you this in my personal situation in tomorrow's video.

[00:08:52]For me personally, the rent veaster strategy always wins. And I've used exactly the same numbers on all three scenarios in terms of capital growth, in terms of yield. I have not made one better off. This is pure numbers in pure figures. Your agent will show you if you book a meeting today exactly how this works in your scenario. But for me, unequivocal proof. Obviously, waiting 10 years doesn't help anyone. If you think it does, please look at the last 50 years of history. But buying today is still better. But how much better? Cash flow strain, difficulty making those payments, trouble finding exactly the right property within your demands, but also no hope of growth outside of your personal asset. Compared to the rent vetor ticks the lifestyle boxes, ticks the cash cash flow boxes, but also allows you to grow your portfolio. This is two properties you can technically buy three to four if you execute this properly. Stay tuned tomorrow where I'll show you my personal property journey.

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