Rentvesting has become an increasingly popular choice for people who choose to rent a property in an area they’d like to live in and buy an investment property in an area they can afford. This unique approach allows individuals to essentially have their cake and eat it too – to enjoy the lifestyle of their choice while strategically investing in property.
What are the pros and cons of rentvesting?
Benefits of rentvesting
Flexibility of choosing your location
Rentvesting empowers you to live in your preferred location rather than being restricted by where you can afford to buy.
Investment opportunities
By renting in one area and investing in property elsewhere, you can capitalise on emerging real estate markets, potentially reaping the benefits of property appreciation. This approach opens doors to building a robust property portfolio and taking the essential steps towards climbing the property ladder.
Potential tax benefits
Rentvestors may be eligible for tax deductions on investment property expenses such as interest payments, property management fees and depreciation.
Rental income
In some cases, the rental income generated from investment properties may exceed the rental expenses paid by the renter, resulting in positive cash flow for the rentvestor. This additional income can contribute to long-term financial stability and wealth accumulation.
Factors to consider about rentvesting
No access to the First Home Owners Grant
Rentvestors are unable to access the First Home Owners Grant which is given to first time home buyers who intend to live in the property for the first year.
Lack of control over the rental property
As a renter, you may face restrictions on making significant modifications or improvements to the rental property. You will also be subject to the decisions and actions of the landlord such potential changes in lease terms and property sales which could disrupt your living situation.
Capital gains tax liability
If you end up selling your investment property, you’ll need to pay tax on any capital gains. If you sell an owner-occupied property, you don’t pay capital gains tax.
Ongoing costs
As an owner of an investment property, you will be responsible for maintenance and management costs. You may also have to pay the rent in the case that your rental income is less than the repayments or if the rental property is vacant.
Tips for prospective rentvestors
Before getting into rentvesting, it’s important to know why you’re considering this as an option. First and foremost, conducting thorough research on both the rental and investment markets is crucial. Staying informed about property trends and identifying potential growth areas provides a solid foundation for informed decision making.
Before getting into rentvesting, you need to ensure you are financially prepared. Having a comprehensive game plan that accounts for short and long term goals and ensuring effective budgeting to manage rental and investment expenses is crucial. Factors such as stamp duty, lenders mortgage insurance, deposits and legal fees need to be considered in your strategy.
How do I start rentvesting?
1
Define your financial goals
Determine the purpose of your investment, whether it’s to accumulate wealth, retirement planning or property portfolio diversification.
2
Conduct market research
Thoroughly research both the rental and investment property markets. Identify areas with potential for growth and analyse market trends. Consider factors such as rental demand, property values and economic indicators such as inflation and cash rate changes.
3
Assess your budget and financial capacity
Develop a detailed budget that accounts for your current financial situation. Consider both investment and rental property expenses, including potential loan repayments, property management fees and maintenance costs.
4
Book a consultation with one of our Lending Association mortgage brokers
Our team will help you navigate the complexities of property investment, ensuring you make well-informed decisions. We will work with you to explore financing options tailored to your needs, helping you understand the lending criteria, interest rates, and repayment terms.
5
Identify investment properties
Look for locations that align with your goals, whether its potential for capital growth, high rental yields, or a combination of both. Consider the property’s condition, amenities and proximity to essential services.
6
Secure your rental property
Select a rental property in your desired location that meets your lifestyle preferences. Ensure that the rental agreement aligns with your plans for property investment, providing the flexibility needed for your rentvesting strategy.
Rentvesting is a compelling strategy for those seeking financial flexibility without sacrificing their desired lifestyle. If rentvesting is something you are considering, it’s important to understand why and carefully plan your approach. For more information, book a consultation with one of our Lending Association mortgage brokers. Our experienced team is dedicated to assisting you in navigating the intricacies of property investment, helping you make informed decisions.
Disclaimer
Any information provided herein is of a general nature only. No consideration has been taken into your objectives, needs or financial situation. Before acting on this information you should consider if it is appropriate for your situation.