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- As we checked out the local real estate prices in and around Launceston, Tasmania the following question was asked on several occasions: "since prices are so low, why don't the locals buy instead of rent?"
This is a very valid question, especially when you realise that although house prices in Sydney and Melbourne are much higher than in Tasmania, construction costs and wages are not substantially different.
This means that housing is far more affordable for Tasmanians than for Sydneysiders or Melbournians for example.
There are two very important reasons for this.
Firstly there is a huge diference between an investor's mindset and that of a renter and
secondly an investor is prepared to sacrifice today's lifestyle for a better lifestyle in the future.
Let me explain . . .
When the renter receives his or her regular pay cheque, their mind goes into a process which tells them that they must pay the rent by the due date, otherwise they will be tossed out of their home.
They may have received warnings for late payment in the past or may have even experienced an eviction. The consequences of late payment are therefore very clear to them and so the payment of the rent is a high priority for a renter.
(Just ask my tenants.)
The majority of renters live from week to week and often struggle to get enough money together to pay the bond.
Here's an example of just how difficult it can be for an average Australian university graduate living in a capital city to get out of the rental spiral and change from being a renter to an investor.
Let's say they are on a salary package of $39,000 a year and after deducting the employer's superannuation contribution of 9 per cent, repayment of their HECS debt and taxation, they are left with a take home pay of $25,000 a year or $480 per week.
If they are renting a two bedroom appartment in Sydney for example, they are likely to pay somewhere between $150 and $300 per week in rent.
That means they need to come up with a bond of between $600 and $1,200 for their rental accommodation plus bonds for the supply of their telephone, electricity, water and possibly gas.
This doesn't leave a great deal over for food, clothing, travel, entertainment and other expenditures.
The only way out of this is through careful budgeting and saving.
The same person living in Tasmania would need to spend far less on their accommodation, more in heating costs and have more money available for discretionary expenditure.
So are they more likely to become an investor than a renter living in Sydney?
Probably not.
Even though their accommodation costs may be lower, they will tend to spend more on lifestyle and entertainment and still not get the money together to invest if they are stuck in a renter's mindset.
The investor's mindset on the other hand is that they are willing to make some sacrifices now, in order to invest the money for a better asset base and lifestyle in the future.
The investor has programmed his or her mind to put aside a part of their income for investment purposes. They pay themselves first and invest in their future.
They are also willing to leverage their current asset base to make their money work harder for them so they don't have to.
The investor is focused on paying their mortgage on or before the due date and ensuring the rent is collected in time to meet their commitments. They are interested in having renters who pay on time, rather than paying rent to other landlords.
Often the renters will have the bigger and newer cars, the larger television sets and the overseas trips while the investors stretch their dollars to plough into income producing and appreciating assets.
Do you have an investor's mindset?
About the Author
Hans Jakobi has a mission. He is dedicated to teaching ordinary people how to take control of their financies and build wealth. Hans teaches that you are the only person you should trust with your money. He is a Chartered Accountant with a Degree in Ecomomics and Accounting. After applying his knowledge to a multi-million dollar investment portfolio himself, he now teaches the keys to achieving financial independence. He says that you have reached financial indpendence when you no longer have to work for money, because your money now works for you. Click here to learn more about Hans Jakobi's teachings: http://www.moneysecretsonline.com To subscribe to his Free 15 Day Financial Freedom NewsLetter send email to: msonewsletter@onlinemediasolutions.com