The rent trap is when you are stuck in a financial position where you are continuously renting property, instead of buying your own.
As you get older it gets more and more difficult to get out of the rent trap. This is why it’s important to be aware of the problem while you are still young, so that you can take the necessary steps to break free.
The option to buy is only available if you have saved enough money for a deposit. This takes time, so it pays to start as early as possible.
Save
While you are saving for a deposit, you will have to continue renting. The key to saving effectively is to avoid spending all of your available accommodation budget on rent, says Just Property chief executive, Paul Stevens.
“You need to rent a cheaper property that will leave enough in your budget to allow you to save towards a deposit on your own property. This can be done in as little as two years. See how it can be done here.
Start small
Stevens’s advice is to start young, start small, and build up over the years.
“Success in life requires hard work and discipline, so It’s important to take a long-term view. When you have a sizeable deposit, start small - buy a flat or a townhouse you can comfortably afford now. Live in it while you save hard for a deposit on your next home.
“You can then sell or rent out the first property and buy a bigger place. Live in that for a while and repeat the process - sell and move to a more expensive home, and so on.”
Capital growth
Stevens says it’s a mistake to assume that your income will increase as you get older and that you’ll always be able to maintain your current standard of living - or even improve it – while renting.
“That is not necessarily so. Your responsibilities are bound to increase, as will your rent. Recent rental data shows that long-standing tenants are battling to keep up with rent escalations. If you’re already renting the most expensive property you can afford, it is quite possible that you will never own your own property and you could be placing yourself at a financial risk.
“Unlike a new vehicle - which depreciates the minute you drive it off the showroom floor – property generally increases in value over the years. When you finally sell, you will reap the benefits of capital growth. This is what parents should be telling their kids,” he says.
“The long-term reward - the prospect of creating wealth for generations to come - is phenomenal. The younger you are when you buy your first property, the better your chances of creating wealth long before you retire.”
