Rentvesting has been around a while now, but it’s becoming increasingly more popular, especially in Sydney, where buying a home is becoming almost impossible. Saving a property deposit is getting even harder every year particularly as property prices are outpacing wages growth.
Being able to buy a home in an area that you actually want to live in is becoming a real challenge. If you don’t want to live more than an hour out from the capital city or endure long, painful commutes to reach your workplace, then rentvesting could be the alternative you have been looking for.
What is rentvesting?
Rentvesting is all about renting in an area that you want to live in, whilst buying an investment property in a more affordable location. This allows you to enjoy the best of both worlds; that is living where you want and owning a property. As home ownership becomes more unattainable, the only real way that many young Australians will be able to own a property is to buy the property as an investment first, whilst continue to rent.
Why should you consider rentvesting?
If you want to get on the property ladder, but don’t want to move from where you are now, then you might want to consider becoming a rentvestor.
As it is usually more affordable to rent in an area that is more popular than it is to buy, it allows you to enjoy a fulfilled lifestyle, whilst be able to get on the property ladder through buying an investment property elsewhere. You get to enjoy the best of both worlds, allowing you to purchase a home to live in, in the future.
Who are rentvestors?
Typically, your average rentvestor is between the ages of 25 to 45. They love the lifestyle that renting brings, living in an area that they love, typically within the inner city, but also want the security of owning a property. Rentvestors also tend to be first home buyers who have yet to purchase a property, but don’t want to move in order to buy a home they can afford.
What are the advantages of Rentvesting?
Rentvesting has a number of advantages which you need to consider before you go down this path.
- Gets you on the property market sooner – Instead of waiting to try and save up a deposit for a home to live in, you can buy today in an area that is more affordable that best meets your budget. This might mean investing in a property interstate.
- Ability to purchase a second investment property easier – Once you have bought investment property one, it is far easier to expand your property profile to purchase investment number two, helped by equity in your new home.
- Continue to rent where you want – As you are buying as an investor, this means that you don’t need to move to live in the property. You can still rent in an area you actually want to live in so you don’t have to sacrifice your lifestyle or send your kids off to a new school.
- Ability to save tax – One of the major advantages of rentvesting is the ability to save tax. As a property investor, there are a number of tax savings you can benefit from including negative gearing and depreciation which are the major tax incentives. Other ways to save tax is from legal fees, water rates, council rates, property management and the travel to inspect your property. Ensure you get yourself a good accountant to claim as much tax back as possible – there’s more than you think!
- Enjoy capital gains – Buying in a good growth area also could mean you make capital gains, particularly if you buy off the plan. By the time settlement arrives, your property could have already increased in value, adding money straight into your pocket.
- More flexibility – Renting gives you more flexibility allowing you to move around and live in a new neighbourhood if you fancy a change or get a new job.
- Adjust your budget – If you are facing higher mortgage repayments due to interest rate rises, then you have the ability to rent somewhere cheaper to free up some money. However, remember that you should buy a property that sits comfortably within your budget to reduce your risk of financial pressure.
- First home owner grant still available – Many people believe that if you own a property as an investor then you miss out on the first home owner grant. However, this is not the case as long as you don’t live in it. If you buy a property solely for investment purposes, then you still have the ability to buy your next property as an owner occupier and receive the first home owner’s grant.
Even though there are a number of advantages as to why rentvesting is a good thing, you should also consider the negatives.
What are the disadvantages of Rentvesting?
- Renting is temporary – Renting can be a hassle if you find your lease will not be renewed and you need to move. Finding somewhere else to rent can be stressful and the actual moving is also costly. You also need to consider the packing which can be time-consuming and frustrating.
- Cannot make your rental property your own – When you rent, you are unable to customise the property just the way you want it. You might not be allowed to have pets or you might not be allowed to make changes to the décor, making it a less homely space to live in.
- Less rental properties available – You might also find that some suburbs that you want to live in, simply have a limited number of rental properties within your price bracket available or there is more competition from renters to go up against.
- Rent for longer – Instead of moving into your own home, you might find that you have to rent a property for longer in order to get to the stage where you can afford to buy a property as an owner occupier.
If you are struggling to enter the property market, then rentvesting could be the answer. To find out more about being a rentvestor and work out whether this is the right approach for you, why not talk to iBuyNew today. Give our expert Property Consultants a call on 1300 123 463
today to learn more about why you should consider rentvesting.
Published on 17th of January 2017 by Marty Stanowich