Rentvesting is a strategy that allows Australians to live where they like and have a rental property in a place that they would prefer not to live in. For example, if you work in the Melbourne CBD and prefer the lifestyle there, you can rent in the city while buying an investment property in a more affordable area, such as a regional town or an outer suburb, where the cost of buying a property is lower.
Why Is Rentvesting So Popular?
For many Australians, property prices in metropolitan areas are beyond reach. Rentvesting is popular because it offers the best of both worlds—affordability and lifestyle. You can live in your desired location while still entering the property market.
Pros of Rentvesting
- Buy a property earlier than otherwise: Rentvesting allows you to buy property sooner by choosing affordable locations, even if they’re not where you want to live.
- Tax Deductions: Investment properties offer potential tax benefits, including deductions for expenses like mortgage interest, repairs, depreciation and maintenance.
- Flexibility in Lifestyle: Rentvesting lets you live in a location that aligns with your lifestyle without the need to buy in that area.
- Capital Growth Potential: With strategic location choices, you can benefit from property growth in a high-growth area while collecting rental income – and hopefully the rent you receive will be able to pay the rent that you pay.
- Lower Mortgage: Buy buying an investment property in a cheaper area, you will have a lower mortgage than if you bought in the area that you would like to live in.
Cons of Rentvesting
- Extra Work: You’ll need to budget for both renting and managing an investment property, including mortgage repayments and upkeep. A property accountant like Nobel Thomas, can help you along the way.
- Less Security in Renting: Renting comes with less stability, as your landlord may increase rent or decide to sell the property, obviously subject to state tenancy rules.
- Financial Complexity: Managing rental and investment property finances can be challenging and may require professional tax and financial planning. Your accountant Melbourne can help you here.
- Missed Homeowner Benefits: First home buyer and stamp duty grants are generally only available for owner-occupied properties (i.e. properties that you buy and live in). So, if your first property is an investment property, then you are likely to miss out on these grants. Again, best to speak to a property accountant on what’s best for you.
Is Rentvesting Right for You?
Here’s what to consider:
- Financial Stability: It’s important to have a stable income and a budget in place to ensure that you are able to service the mortgage repayments while being able to pay your rent. Your accountant Melbourne can help you set this budget.
- Market Research: Success in rentvesting depends on choosing an investment area with high rental demand and growth potential.
- Lifestyle Preferences: If your ideal lifestyle requires you to live in a high-demand area, rentvesting might allow you to do so without owning a property there.
- Long-Term Goals: Rentvesting may delay buying your own home, but it could also help you build a property portfolio which eventually helps you buy an even bigger and better home for you to live in than originally planned.
Steps to Start Rentvesting
- Set a Budget: Determine if you can comfortably afford renting while managing an investment property, a mortgage and expenses. As mentioned earlier, your accountant Melbourne can help you set this budget.
- Research Investment Areas: Look for areas with high rental demand, affordability, and strong growth prospects. Using AI and Google, this shouldn’t be too hard to find if you don’t have a real estate agent to speak too.
- Seek Professional Advice: Consult with professionals such as a property accountant to create a solid rentvesting plan.
- Choose an Investment Property Carefully: Prioritize low-maintenance properties with a stable rental yield. A rental yield is calculated as rent received on an investment property divided by the cost of the property. Suppose, for example, that a property costs $500,000 to buy and the weekly rent that you will receive from renting the property out is $575 per week ($30,000 per year), then the rental yield becomes 6% (30,000 divided by 500,000 equals 6%). Depending on the suburb, many specialists believe that a rental yield less than 3% is best to avoid
- Look for depreciation benefits: Properties built after 15 September 1987 can provide additional depreciation benefits. Please seek advice from your property accountant, such as Nobel Thomas, for further information
- Regularly Review Your Strategy: Make sure your rentvesting strategy continues to align with your financial and lifestyle goals over time.
Rentvesting provides a great way into the property market for those who prioritize lifestyle and financial growth. It’s ideal for anyone wanting to live in a preferred location while building equity in a growing property market, even if those properties are located in other areas. However, rentvesting requires careful planning and market knowledge to manage the dual responsibilities of renting and investing. If you’re prepared and committed to long-term wealth creation, rentvesting could be the perfect solution for achieving both lifestyle and property ownership goals. Please contact the team at Nobel Thomas if you have any further questions.
