Is Rent Money, “Dead Money”?

Rent is the price of housing accommodation

The home building industry often promotes to potential young home buyers that rent money is “dead money” i.e. money down the drain. It encourages them to stop paying rent and, instead, use the money to pay off the mortgage on their own new home.

I became very aware of the power of this self serving message when my 24 year old daughter proclaimed that she wanted to buy her own property as soon as possible, as rent was “just dead money”. Although impressed by her determination to take on such an obligation, I couldn’t resist the opportunity to give a basic economics lesson.

The reality is that rent is not dead money but the cost of purchasing housing accommodation. It is essentially the same as paying for a hotel room for an overnight stay or for a two week vacation in a luxury holiday resort.

We all pay the cost of housing accommodation, whether we rent from a third party or we own our home. And this is the case, regardless of whether or not we have a mortgage.
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Mortgage or Super?

Are you better off reducing your mortgage or contributing to super?

A lot of people ask this question. Unfortunately, as with many wealth management decisions there is no straight forward answer. The appropriate choice depends on a number of issues, some of which we address in this article.

The obvious starting point is to look at the numbers. Assume you have 15 years until you can access your superannuation benefits free of tax. You have a mortgage that is costing you 7.0% a year (after tax) and a small amount of super. Over the next 15 years, you expect to have at least $13,375[1] a year of surplus cash flow.
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