Understanding Rentvesting

“Rentvesting” is a strategy where you purchase a property in an affordable but less preferred suburb, while simultaneously renting a property in a location you desire. This approach is gaining popularity in Australia.

The primary appeal of “rentvesting” lies in allowing people to enter the property market without compromising their preferred lifestyle, a property manager can take care of the property you own while your rent elsewhere. By utilising rental income, individuals can secure a property in a more affordable area, thus initiating the accumulation of equity and paving the way for future homeownership.

The key to successful “rentvesting” is diligently investing the surplus funds generated each month. For instance, if you purchase a home in your desired neighbourhood with a monthly mortgage repayment of $4,000, but renting in the same area costs only $2,000, you could potentially have $2,000 available each month for investment purposes. This strategic use of funds is fundamental to the effectiveness of the “rentvesting” approach.

Exploring the Benefits

Lifestyle Enjoyment:

Can you picture yourself living in a home close to the city? Perhaps you seek the convenience of being near various lifestyle amenities, such as job opportunities, beaches, cafes, parks, and the proximity to friends and family. For many first-time homebuyers, purchasing property in such highly sought-after areas can be quite challenging.

“Rentvesting” presents itself as a significant advantage, enabling you to enjoy the desired lifestyle while simultaneously advancing on the property ladder.

Wealth Building:

By redirecting the savings on mortgage repayments into one or more investment properties, “rentvestors” can steadily accumulate wealth, creating a diversified and resilient financial portfolio.

Flexibility in Residence:

“Rentvesting” provides the flexibility to reside in various locations and properties, given that you are renting and not committed to staying in a single property for an extended period.

Tax Benefits:

Ultimately, you can enhance your post-tax cash flow by leveraging tax deductions. Numerous expenses associated with your investment property qualify for tax deductibility, such as repairs, improvements, property manager fees, stamp duty, lending fees, holding costs, depreciation expenses, interest on an investment property loan, insurance costs, advertising expenditures, and more.

In situations where the value of the investment property declines over time or the expenses of maintaining the property exceed the income generated from leasing it, you have the option to claim these losses. This tax deduction proves beneficial, particularly when facing challenges in covering costs like dishwasher or washing machine maintenance.

Exploring Disadvantages of Rentvesting

Missing Out on First Homeowners Grant:

The First Home Owner Grant is specifically designed for first-time homebuyers who plan to occupy the property they are purchasing or constructing; it does not extend to investment properties. Choosing “rentvesting” instead of building a new home results in the forfeiture of eligibility for this grant.

Paying Tax on Capital Gains

If you own the house you reside in, you are exempt from paying capital gains tax when selling it. Conversely, selling an investment property subjects you to taxation on the profit you earn.

Control and Stability Concerns:

Opting to rent a property introduces challenges such as limited control, rental inspections, and potential rent increases, impacting the overall sense of stability and control over your living environment.

Determining if Rentvesting Aligns with Your Goals

We all have unique lifestyle and financial goals, making it important to carefully consider the benefits of both strategies when deciding between “rentvesting” and buying to live.

Choosing to buy a home to live in often proves to be more cost-effective in the long run compared to “rentvesting”. Living in your own property provides a sense of stability that rented accommodations may lack. The freedom to make cosmetic improvements without permission, exemption from rental inspections, and the comfort of living within your means are additional advantages.

For those who can afford to purchase their dream home, buying a property to live in is a solid choice. In such cases, the investment strategy may involve acquiring a primary residence first, building equity, and then considering an investment property.

On the flip side, purchasing a home in a desired location, especially in areas closer to the CBD, can be expensive. “Rentvesting” offers the opportunity to live in a desirable neighbourhood while simultaneously investing in a property in a more affordable area. This investment property can generate rental income and contribute to capital growth. Eventually, you can leverage the increased value or equity to either sell the property or acquire another in a preferred location.

If you are already a “Rentvestor”, reach out to our experienced Perth property management team to discuss how we can maximise your returns.