It will come as a surprise to most people that I rent the house that I personally live in. After all, what's the point in making lots of money from investing in property if you don't own your own home?
See the original Instagram post here https://www.instagram.com/p/B-M1REgnzBF/
These are the reasons why ...
Firstly, if I wanted to buy the house I live in I would need a significant deposit. For example, If I applied for a residential mortgage and needed a 10% deposit I would need £65,000 as a deposit, which for most is a large amount.
Now, say I did have £65,000 sat in the bank and could afford the deposit would I still do it?
No way. What most people don't understand is that your own home is not an asset. As soon as I put money in to my own house and take out a mortgage it becomes a liability - each month money is coming out of my pocket to service the debt. In this example I would have a mortgage balance of £585,000 which the bank have loaned to me so I could purchase the house. To borrow the £585,000 I would have to pay back £750,000 over a 20 year period (I've made these figures up for illustrative purposes) - so in reality my £650,000 home has cost me £815,000
Staying on the subject of large deposits, would it be better to put £65,000 into your own residential home or use it to fund an investment property?
If I invest £65,000 into a development it's going to be putting money into my pocket each month, not taking money out.
If you want to learn more about the above reason watch this video my Robert Kiyosaki - Rich Dad Scam #6: Your House is Not an Asset https://www.youtube.com/watch?v=PaqT_lQJTjU
Secondly, if you rent a property you have flexibility. Say your financial circumstances change and you can no longer afford the monthly rent, you can usually move-out within 1-2 months whereas if you need to move out of a house you own you will still have a mortgage to pay.
Thirdly, maintenance issues. One of the benefits of renting a property is the fact that you aren't liable for repairs and maintenance issues, which can often save you thousands of pounds.
The final reason why I don't own the house I live in, and probably the most important, is for tax purposes.
The property I live in is paid for by one of my companies, not me personally.
Let me explain ...
Say the monthly rent is £2,000
For me to pay £2,000 each month out of my personal account it would in fact of cost me c. £3,000 because of income tax - if you can get your head around this idea of 'phantom income' and saving thousands almost invisibly it will change your life.
Whereas for me to pay £2,000 each month out of my business account it would have just cost £2,000 and as it's classed as a business expense it is tax-deductible - another win. Now I'm not a tax adviser and each persons circumstances are different so please talk to your accountant if this idea is something you like the sound of.
Thanks for taking the time to read this article.
Ryan Little
little articles.
big talk.
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