Is Rentvesting The Right Strategy For You?

Dilleen Property Group 2023

When it comes to property investing, aspiring investors are often faced with the dilemma of whether to buy a home or continue renting while investing their money elsewhere. Due to many inner-city suburbs becoming more and more unaffordable nowadays, the strategy of “rentvesting” gained popularity over the years, offering an alternate path to building wealth. Rentvesting allows you to rent in a desirable location while also investing in another location where it’s best from an investment perspective. This enables rentvestors to invest in affordable areas while living in more expensive inner-city suburbs closer to work. Just like any type of investment strategy, it comes with certain risks and benefits.

Here are the advantages and disadvantages associated with rentvesting:

Lifestyle Flexibility

Rentvesting allows individuals to live in their desired location, which means closer to work, amenities, public transport and social circles. For many people, this may mean living in CBD areas like Sydney and Melbourne where suburban median prices are around $2 million. Rentvesting allows individuals to rent properties that suit their needs and preferences without having to commit to purchasing the property in an expensive area. This gives investors the freedom to move around more easily and explore living in different areas and even cities to test out what their ideal lifestyle is and where they prefer living before actually purchasing their principal place of residence.

Investment Opportunities

Rentvesting opens investors up to much more investment property options as they are not restricted by the need to have to live in the property one day. By investing in affordable locations, rentvestors can take advantage of potential growth areas and higher rental yields. This strategy enables them to build a property portfolio and generate income from rental returns, all while benefiting from potential capital appreciation in their chosen investment locations.

Tax Benefits

As an investor, you may be eligible for tax deductions on expenses related to your investment property, such as interest on the mortgage, property management fees, repairs, and maintenance costs. These deductions can help offset your taxable income. By investing in an affordable area, you are also able to get your foot in the property market early instead of having to save up a big deposit to purchase a house you want to live in. Purchasing a principal place of residence also doesn’t offer the same amount of tax benefits that you can get from investment properties.

Here are some considerations for rentvesting:

Mortgage Repayments and Rent

It is crucial to have a clear understanding of your financial situation before choosing to rentvest as you will have to simultaneously pay for rent and mortgage repayments. It is a good idea to consult with a professional to help to assess your financial circumstances to ensure that you can comfortably afford both payments.

Instability of Renting Property

Renting is less stable compared to purchasing and living in your own house. You may be forced to move out after your lease ends if the landlord decides to vacate the property or change tenants. This means you will need to make the property available for inspections which can be an inconvenience for you. Additionally, your landlord can also increase the rent of your property which will rise the expense you already have.

No First Home Buyer Benefit

Rentvesting may delay your eligibility for certain first home buyer benefits, such as grants or stamp duty exemptions. These incentives are typically available to those purchasing their first property as an owner-occupier, so renting while investing means you may not qualify for these advantages.

Rentvesting can be a viable strategy for those seeking a balance between their desired lifestyle and property investment goals. It provides flexibility, investment opportunities, and tax benefits. However, it is not without risks and considerations. Evaluating your personal circumstances, financial goals, and risk tolerance is crucial in determining whether rentvesting aligns with your overall investment strategy. If you’re looking to start your property investing journey, feel free to contact us here to learn more about our services and investment strategy.

Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.