You probably heard the term ‘Living the Dream’ when people buy a house, but did you know that this term was invented by banks in the 1950’s to sell mortgages to people? It was basically an emotional message that to live the dream you needed to get yourself into debt. And compared to salaries, large one at that!
More and more people these days are questioning that dream. I was, and still am one of those. I do not like the feeling that a mortgage gives me on a house I live in; it makes me feel like I bought a prison instead of a home. Consequently I choose to be, what they call these days, a rentvestor.
I had to specify that it’s the mortgage on my own property I don’t like.
And here is why:
The biggest reason why I don’t buy a house to live in with a mortgage on it, is because in my eyes it’s not an asset, it’s a liability! See, real assets in my mind are those that produce and income. And liabilities are things that only have an expense. In which case a mortgage home is an asset. Sure it goes up in value over time, but you cannot really realise that growth unless you sell the property or create a bigger mortgage.
I am also bothered by the fact that the running costs are not deductible. When you look at an average mortgage costing about $20,000 a year, that is a large chunk of money to not use in a more effective way!
The place I want to live at demands a much higher mortgage repayment than rent payments. As such if I want to keep my lifestyle intact, I have a choice, either rent in the area I want to live in. Or diminish my lifestyle to reduce my mortgage payments.
Rent payments don’t change unexpectedly because you have a lease agreement. Now I know that you can set your mortgage up with fixed term payments, but they are not overly conducive to helping you repay the loan as quick as possible.
And rent payments can be set up in tax effective ways. You may want to ask your accountant as to how you can do this.
Now don’t think that I am totally against mortgages and properties. Far from it! In fact I like property, and it is my chosen asset class when it comes to wealth creation.
I employ several strategies to keep me involved in property. Buy and hold, buy and subdivide, renovate and flip, joint ventures, large developments and the list goes on. The aim of all of these strategies is to create income. Which means that the properties I buy cannot be a drain on my purse!