Rentvesting: What You Need To Know

What is

Rentvesting?

Rentvesting is an investment strategy that allows you to have the lifestyle you want now, while at the same time building a property portfolio for the future.

Put simply, rentvesting is an investment strategy where you rent a property to live in that suits your current lifestyle, while you own an investment property that is suitable for your budget. As house prices in capital cities like Melbourne, Sydney, and Brisbane continue to rise, rentvesting is becoming an increasingly popular strategy, especially amongst millennials who are determined to enter the property market sooner rather than later.

If this is the first time you’ve heard the term rentvesting, you’re probably wondering how on earth it makes sense to be paying both rent and a mortgage at the same time. Surely it makes more sense to just purchase a house to live in?

When it comes to buying property, whether that’s a property to live in, or a property to earn an income from, there is no one-size-fits-all solution. It all depends on your budget, the phase of life you are in, as well as the lifestyle you want to live. Contrary to the traditional belief that rent money is dead money, rentvesting allows you to use renting as part of an effective overall investment strategy.

Who is rentvestingright for?Maybe you're single and you want to get your foot in the door of the property market, but the house you want to buy is out of your price range. Or perhaps you want to live in the city for the time being, even though you know you want to relocate to a more spacious property out of the city in the future. Or perhaps you’re someone else.

Ultimately, rentvesting can give you the best of both worlds: you can buy a property and rent it out to cover some or all of your ownership costs while continuing to rent a house in an area where you live. You might end up spending around the same amount of money if you were just renting or if you were living in a house you owned. The difference with rentvesting is that you can live where you want and get your foot in the property market. With property prices continuing to increase, getting your foot in the door sooner rather than later is a smart decision.

Pros & Cons As with any investment strategy, there are both upsides and downsides to rentvesting.

Some of the advantages of rentvesting include:

1. You get to live where you want to live while owning property in a key growth area
2. As a tenant, you most likely won’t be responsible for any maintenance costs caused by natural wear and tear of the house you live in.
3. You can use income from leasing out your investment property to pay down the mortgage on the property or to pay your own rental costs.
4. You may be able to claim some investment property expenses as tax deductions. These include the interest charged for loans, rental costs like insurance and advertising, and depreciation costs.
5. If your investment property increases in value, you’ll be able to sell it at a profit.

Some of the disadvantages of rentvesting include:

1. Your primary residence will be less secure as you’ll be renting: you may have to move if the owner wants to vacate the property, your rent could increase, and so on.
2. As a landlord, you will be responsible for the costs and management of repairs to your property.
3. You may also have to pay fees to a leasing agent. If your rental income is less than your ownership costs, you’ll need to make up the difference, on top of paying your own rental costs.
4. If you end up selling your investment property, you’ll need to pay tax on any capital gains. You don’t have to pay capital gains tax on most owner-occupied properties.
5. Rentvestors aren’t able to access the First Home Owners Grant and other first home buyer government incentives.
   

If you’re thinking of investing in property, it makes sense to get professional advice from a qualified financial planner. With the right guidance, you could be on your way to living the life you want now, while planning for a secure future.

If you’ve decided rentvesting is for you, or if you want to figure out if it will work with your current circumstance, get in touch with us today.

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