We often get to hear the adage “Rent money is dead money”. Whether it is true depends on many factors such as your situation, personal needs and market conditions at that time.  For years this has been believed to be true, but it is not always. Renting is a better investment when the rent is less than the total of the interest paid on mortgage plus the maintenance cost of the property and also when the prices of properties are either falling or static. If your stay is for a short period renting is a good option.  Buying real estate is a long term decision involving huge amounts of money and lots of commitment like paying taxes.

Houses were thought to be good investment when there was a housing boom.  A lot of people bought houses hoping that the prices would go up bringing them profit.  This is exactly the reason behind the biggest foreclosure scenario in the US.  Even if home prices increase or decrease, the rate of appreciation is found to be less than the inflation levels in the long run. Even in the short term real estate investments are not that lucrative.  Calculations reveal that the person investing in stocks in the past decades have made more money than those who bought a home.  Renting in the initial stages of your life is a good way to build wealth through investing for good returns.  

‘Rent money is dead money’ is the belief of those who go with the myth that the money spent on the first five years of owning a home is like throwing away their money. This is because you pay this money to receive the loan to buy the property.  On the other hand, by renting you pay only the rent for the property and save hundreds of dollars and invest in stocks, bonds or other forms of investment with better returns. Money saved thus can be used at a later time as down payment to get a good mortgage rate for a new house.  The agents commission and closing costs are calculated as a percentage of the loan amount. This works out to a total of 11 percent and hence avoidable. In contrast, when you rent a house the money you pay upfront as security deposit will always be returned to you at the end of the lease period.  This is another point in favor of ‘rent money is dead money’ argument.

The other side of the myth is that the renter pays off the home owner’s mortgage and hence home ownership is a better investment option.  The average Australian buys and sells a home at a frequency of every 4.5 years. There are more than 70 percent of properties occupied by owners and a burgeoning number of real estate agents. The newspapers in Australia have more pages allotted for real estate classifieds than for all the other features.  People sell their homes and buy another as their circumstances keep changing with increased income and children. All said, it is your own personal preference to decide your lifestyle and investing irrespective of the adage “rent money is dead money.”