Is buying a home to live in, a Liability? Posted on August 12, 2019September 13, 2019 by Arjun Want our top tips for finding investment properties that PAY YOU? Get Your Free “Positive Cashflow Property Checklist” Transcript Well, I asked this question to my audience and 68% said yes, it is a liability 32% said no, it’s not a liability. Before we go into “No No, but an owner occupied home is going to do this for you and it won’t do that for you”. Let’s just turn back and maybe think of some of the reasons why 68% of the investor kit audience said yes, it is a liability. Now I’m just going to be straight forward and say I agree. I feel like it can be but this is more situational than anything and what I mean by that is let’s go firstly into the reasons why 68% might think it is a liability. Number one, you’re usually buying the property with a sense of an emotion. So you haven’t always thought about it from what it might do for investors or an investment asset. You just think of while I like to live there maybe others will and then it should be a good investment.Sometimes it works. Sometimes it doesn’t. But when you think about that you’re going in there’s this emotional investment sometimes you pay a little bit more than you have to or when you have that investment moment where you start to rent it out, It doesn’t perform the same way you’d hoped it to because you didn’t buy it for that reason anyway. Number two of why someone might consider it as a liability is the debt actually earns you no income. Yes, it stops an expense from rent but it earns no income and therefore it’s non-tax deductible then. Again another reason why it might be a liability is it reduces your level of flexibility. Once you usually buy a home to live in you’re going to be staying in there and probably for a long time as well. So in that perspective now, you’ve got no flexibility, it doesn’t produce an income or have any taxable sort of gain for you in the short term and at the same time it’s not an investment asset because you didn’t think of it from that perspective. Another thing to think about as well of why people might think it’s a liability is that when say mortgage interest rates go up it’s not like you can increase your rent for where you live and sometimes that cost out of pocket can be substantial. Depending on which city you’re in as well it could actually be much more to pay a mortgage down even in low interest rate environments for example in Sydney and Melbourne, than it is to actually rent the equivalent place in most parts of the city other than maybe places that are very far out and so forth. So from that aspect, these are some of the reasons why someone might think it is a liability. Now if you think of why it isn’t a liability, let’s play devil’s advocates to the majority stored and think why do the 32 say no it’s not liability. Number one is well, if you do decide to sell it it may be tax free and all that taxable outcome that you mixed in short to medium term if you decide to sell all those gains that might not impact you at that point and you might have the long-term benefit of the tax pipe not to short to medium term. The next thing is maybe because you’ve purchased it with that emotion with that owner occupier lens, you might purchase a good investment in a nice area because of that thought as owner-occupiers, might be thinking from the rentals view in some cases and then that way performance starts to end up being pretty good. The next part is the equity that you gained instead of renting somewhere or you living somewhere you’re paying it down and the equity that’s there you can now leverage it for investing whereas if you’re just paying rent it would just be your hard-earned savings and the performance of Investments. So that’s another reason why the 32% might think it’s not a liability. Other parts are that people think rent is sometimes dead money because it’s going to someone else’s mortgage or someone else’s pocket. Whereas if you’d paid on your own it’d be coming down yours and you’ll be creating long-term wealth, but if you think about it all – 68 and 32 still a fair difference in why people think it’s a liability or not. Now the next term is rentvesting. This is come along and it’s become quite popular. I’ve just started on my rentvesting journey and in a couple weeks from now, I’ll be in my new place renting out whilst having all my investments create an income have some sort of tax deductible portion to them and at the same time, be investments that I feel better graded for long-term investment performance. Now, I’m not going to sit here and say that I didn’t add that liability to my name first because my first property wasn’t owner-occupied and sometimes you know, it can go in that direction. But as time went on I started to realize that it probably wasn’t the best investment for me. Whereas other properties – if I purchase from an investment front straightaway could have done a little bit better. So there you go 68% feel that their owner occupied or buying a home to live in is a liability and 32% said no. Now I’m sure if you ask different audiences that may start to change and yes, there are different benefits from either side of the equation but really it’s up to you and your situation because you can turn any sort of negative moment into a positive and sometimes even those positive starts can turn into negative decisions later on. So from that aspect, it’s all going to be situational based on what your goals are and what you’re trying to achieve. That’s it from us here at InvestorKit, the Experts in Wealth Creation, helping you take action.