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Beware the rent-free house!
By arlene | September 28, 2009
Bearing in mind the investment value of your home, let me digress here briefly to sound a warning about the third way of occupying a house (mentioned earlier) – namely working for an employer company which provides rent-free or low-rental housing as part of its salary package.
Initially, such a “perk” might sound very attractive, particularly to the young couple setting out on married life without much money. They have a nice home – and it costs them nothing! So they think!
Here’s the catch: While your friends who are paying off on their own home are struggling to make ends meet and you have money to spend on luxuries, their properties are increasing in value with the rest of the property market – while you own no property at all!
The crunch will come 20 or 30 years later when your friends retire and have a house in which to live rent-free for the rest of their lives – and you retire and have to buy a house at the inflated prices then reigning. If you don’t have the money for that, you will have to rent a house at ever increasing rentals for the rest of your life.
That is not an attractive proposition.
However, there is something you can do about it, provided you start soon enough and are disciplined and resolute enough.
By all means, make use of the “rent-free” house you are occupying, but bear in mind that you will have to pay income tax on the rental value, because all things considered, it DOES represent a form of income in kind if not in cash.
What you should also do is to take a hard decision to tie yourself into a monthly savings and investment programme equal to the difference between your “low rent” and the “market rent” which you would normally have had to pay for the same house.
There are a number of investments which you could make, such as a unit trust (one of the ways of investing in stocks and shares). Alternatively, you could BUY SOME OTHER PROPERTY as an investment, such as a piece of land in a newly developed suburb or town or in one of the holiday townships being developed on the coast or inland holiday areas.
Of course, you will have to steel yourself to maintain your monthly investment or pay off your loan on the property you are buying, the same as the person who is paying off the loan on the house he is living in, and this will limit the money which you are able to spend on luxuries. But make the sacrifice – because then you too will be participating in the general increase in share or land values over the years, while living in the rent-free house provided by your employer.
Eventually, you will be able to sell your shares or property at a profit and use the money to buy your retirement home. That way, you will not be at a disadvantage compared with your friends who were forced to buy the house they lived in.
Instead of buying unbuilt-on land as an investment, you could buy a property with a house on it, or a flat, and lease it to tenants while you are paying for it. This has the advantage that the rentals paid by the tenants will help you to pay for the place! (Now YOU are in the position of the landlord!)
A point to bear in mind here is that the rentals you receive from your tenants are a form of income, on which you must pay income tax. However, you are allowed to deduct from this income all the costs which you undergo in “earning” it, such as the bank or building society interest you have to pay (a major consideration), and the costs of maintaining the property. Keep a record of these costs.
One way or another, if you are living in a rent-free house, make some sort of financial sacrifice and invest your money SOMEWHERE, to provide for the day when you must pay for your own home.
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Topics: Investment, Land, Market, Property, Rental | 6 Comments »
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