Wednesday, 9 December 2015

Rule 43: Don’t Rent, Buy


By on 05:00
Share this Post Share to Facebook Share to Twitter Email This Pin This

Property Merchant, Princess Alake Oshun with a Royal father & his son

We all need somewhere to live. We therefore have the choice as to whether to rent the roof over our heads, or buy it. Most of us can’t afford to buy outright (I doubt you’d be reading this book if you were in this category), so in order to buy we need to borrow a lump sum of money to buy with. But hang on. Haven’t we said that borrowing is bad, bad, bad and we shouldn’t do it? Haven’t we said that this way madness lies because you pay so much interest on what you borrow and so on? Indeed we have.
So how can you own and not borrow, buy and not have a mortgage?

The answer is that a mortgage can actually be viewed as an investment rather than a borrowing. If you buy a property with a mortgage, you make a monthly investment. The fact you pay that to a mortgage company we can gloss over. You see, in the longer term (and if you’re lucky, the shorter term too) you can reasonably expect that the interest you pay on your mortgage will be less than the increase in the value of your property. What you are banking on is that the value of your home will, in the longer term; go up and therefore you have invested whatever deposit you put down, and your mortgage money. 

“There are those who believe that buying your home instead of renting brings with it huge stresses, and means you have less fun. It’s actually not the ownership that causes stress; its how much you borrow to do it and what that means for your overall financial picture”.

Renting on the other hand is not an investment. You will never see that money again. Of that there is no doubt.
With a mortgage, you stand a good chance in the long term of seeing your mortgage payments lead to an increase in the value of your house. When you sell, you get that increase in value.
There are those who believe that buying your home instead of renting brings with it huge stresses, and means you have less fun. It’s actually not the ownership that causes stress; it’s how much you borrow to do it and what that means for your overall financial picture. The lesson is to think carefully about how much your mortgage repayments will be and that you are able and willing to pay them.
Of course if you buy, there are no guarantees your home will increase in value - there will be house price slumps - but over time chances are that they recover and go on to increase again. Ideally buy cheap and sell for a lot more. You then have a choice: invest the profits in the next property without borrowing any more and in doing so you decrease the mortgage each time. Eventually you own outright and without mortgage payments you have somewhere to live and don’t have to pay for it at all any more.
Alternatively you can do what most people do and buy a bigger, better more expensive house. This isn’t a wealth creation strategy but it can be what you wanted your wealth for, which makes it fine by me. 

From The Book; The Rules of Wealth by Richard Templar
(Read Rule 44 of Rule of Wealth tomorrow on Asabeafrika)


Read-to-Wealth Series
POWERED BY:
http://www.proshareng.com/

Gbenga Dan Asabe

Africa's Number One Celebrity Encounter Blog

0 comments:

Post a Comment