Owning a home is an important milestone for many people, for some, it is even a dream. With rising property prices, however, that dream is quickly slipping out of reach for many individuals. In fact, even the wealthy are opting to rent instead of owning their own property. Since the mortgage crisis of 2008, the perception of property as a stable investment is slowly changing.
So, today, we are going to tackle the question that has been playing in our minds – why do a lot of rich people choose to pay rent instead of buying a property?
Buying a Home Consumes A Lot of Capital
The money used to buy property could have been invested in other areas with potentially higher returns. This is a huge opportunity cost as capital will be tied up in the property. Most wealthy people tend to be entrepreneurial and prefer to invest in their own business or other forms of investment.
Plus, not to mention all the hidden costs of owning a home such as property taxes, maintenance fees and unexpected repairs all on top of the monthly mortgage payment. Even if the monthly rental exceeds the monthly mortgage payments, you don’t have to worry about the other hidden costs of owning a home.
Home-Ownership Can Be Risky
Not only are there many investments that can outperform homeownership, but they are also far easier to liquidate. For example, the downpayment you would have to spend on home would be just as well spent on 10 year Treasury bonds. Buying a home can be somewhat risky as well as evidenced by the 2008 mortgage crisis. There is no guarantee that house prices will continue to go up.
Buying To Rent
Buying a house for your own may not be as good an investment, however, buying property for rental income can be a good investment. Consider this: an RM800,000 rental property can be acquired with 25 percent down or RM200,000. This means you get four times the leverage for your ringgit when you invest in a rental property as opposed to using that money to buy a home. You’ll find very few other investments with that kind of potential. Long story short; rich people don’t get rich buying homes in which to live, they get rich making investments.
Renting allows people to still be mobile and not tied down to one location as you would if you were to buy a house you are living in. Especially in this day and age with an ever-evolving job market, the wealthy would rather have the flexibility to move to take advantage of new opportunities when it presents itself.
A House is an Expense; Not an Asset
The mindset that rich people have is to have investments that increase cash-flow. Unless you rent a house out for profit, then that is a good investment. Businesses that you own, but do not manage or work in, can give you great cash flow. Stocks paying dividends can do that. Loans, where you collect payments and interest, can do that. Websites, vending machines – anything that produces cash for you can be an investment. Also, a house is a pile of repairs made, about to be made, or should be made in a few years. Homeowners are responsible for every little thing. On top of that, since you live in the house you have likely renovated or done a bunch of landscaping to create your ideal living space. 9 times out of 10 none of these renovations add any real value to the house, and you have spent thousands.
Living in an Expensive Area
Another common reason that rich people prefer to rent is simply that they live in an expensive place and are very mobile. So they may rent a place in New York City, London, and San Francisco to live in because it’s much cheaper than buying.
Since they have cash-flowing real estate and other investments to live off of, they know the difference between a property that is an expense and an income property.
If you are still keen to buy a home as an investment, the best way to maximize your returns is to rent out the property for rental income. The process is now even easier with SPEEDHOME dot com. Why? A few simple reasons:
Isn’t it tiring to have defaulting tenants that cause many issues? Late rental payments and multiple figures worth of property damage, you’re starting to think that it’s high time you stop. But luckily, through SPEEDHOME, we run a thorough background check on all the tenants. We also undertake CCRIS & RAMCI credit checks to ensure that you get a good paymaster every time. Instead of having an agent who will be the middle-person between you and your potential tenant, we have a chat system on our website and app. This chat system will enable your potentials tenant to inquire about you more about the property that you’re renting out. This way, you will be able to have more control over the conversations that you have with your potential tenants. You will be able to get to know them more and fish out your candidates without having to actually meet.
Allianz Insurance Partnership
But that is not the only benefit that SPEEDHOME offers to landlords. We also have a partnership with Allianz Insurance where you can get property protection of up to RM42,000. Allianz Insurance Policy covers multiple occasions such as theft, accidental damages, loss of rental and also eviction support. Now, you can enjoy a worry-free rental experience along with Free Rental Collection; where you will get your rent on-time regardless of whether your tenant pays you on-time. Do you want to hear something better? We will only charge you to by this Allianz Insurance Policy someone has rented your property. Isn’t this the best?
Ultimately, if you are not buying a house as an investment, there is only one reason to buy a home: because it makes you happy. It’s totally fine to buy the idea that a home will make you feel safe. Just know that you are paying a premium to make yourself content, even if it often doesn’t make financial sense. After all, you can’t put a price on happiness.
Now over to you. Renting has never been any easier. With SPEEDHOME you can now rent anywhere with Zero Deposit.