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  • Writer's pictureAshley Van Rosmalen

A Comprehensive Guide to Rentvesting

House and Land Package Build

Rent-vesting has emerged as a popular and strategic approach to homeownership, allowing buyers to rent a property in their desired location while investing in more affordable real estate elsewhere. Typically, rentvesters acquire investment properties in rural or regional areas with lower housing prices, all while enjoying the lifestyle perks of renting in bustling city centers or inner suburbs.


The appeal of rent-vesting lies in its financial flexibility. By generating income from the investment property, individuals can offset their rent expenses, facilitating the maintenance of a desired lifestyle. This strategy has gained traction, especially in the face of soaring housing prices in urban areas, providing a viable avenue for entering the property market without compromising one's living preferences.


Understanding Property Investment


In major cities, the stark contrast between buying and renting costs, particularly in cities like Sydney and Melbourne, makes traditional property ownership elusive for many. Rent-vesting offers an attractive alternative, allowing individuals to secure a property in more affordable regions without relinquishing the benefits of urban living.

Consider this scenario: You could potentially afford to buy in the city center with mortgage repayments of $3250 per month, yet renting a similar property in the same location would cost only $1750 per month. This leaves a surplus of $1500 per month that can be strategically invested. Rent-vesting aims to achieve the best of both worlds – owning an investment property that generates income to cover mortgage costs while maintaining the flexibility of renting in the desired location.


Is Rent-vesting a Safer Option?


Rent-vesting offers the opportunity of a rental income stream, though success depends on effective property management and consistent occupancy. Negative gearing, where rental income may not cover the total outgoings of the property, may come with tax benefits, contributing to the appeal of real estate investment. However, the key to rent-vesting success lies in discipline and the surplus generated to be strategically invested.


Pros and Cons of Rent-vesting


Pros:

  1. Freedom of Location: Rent-vestors can live where they desire without being constrained by their purchasing capacity.

  2. Income Stream: Income from the investment property can be used to pay down the mortgage or cover rental costs.

  3. Tax Benefits: Rent-vestors can consult their accountant about various tax deductions associated with their investment property.

Cons:

  1. Limited Security: Renting may provide less security than homeownership, with the possibility of relocation or rent increases.

  2. Exclusion from Grants: Rentvestors may not access certain benefits like the First Home Owners Grant.

  3. Ongoing Costs: While tenants may be spared from maintenance costs, landlords bear responsibilities for repairs and management fees.


Potential Tax Benefits of Rentvesting


Subject to suitability to your circumstances and the appropriate tax advice, Rentvesting may offer appealing tax benefits, including deductions for water and council rates, home insurance, agent fees, repairs, and more. Negative gearing may make property investment more affordable, allowing deductions for expenses exceeding rental income. Understanding and leveraging these tax benefits is integral to maximizing the financial advantages of rentvesting. Having an understanding of the tax benefits of rentvesting would be beneficial.


The Financials Surrounding Rentvesting


For rentvesting to succeed, property selection is critical. Considering factors like capital growth potential and rental return helps in making informed investment decisions. A long-term perspective is essential in navigating the fluctuations of the property market.


Assessing Risk and Mitigation


Like any investment, rentvesting carries risks, including illiquidity, interest rate exposure, and market fluctuations. Mitigating these risks involves diversification, maintaining cash flow, and thorough market research.


Rentvesting Strategy


Embarking on a rentvesting journey involves a three-step strategy:


  1. Save Up a Deposit: Aim for a 20% deposit, if you want to avoid paying lender mortgage insurance. There are some smaller deposit exceptions we can discuss if you are eligible for.

  2. Finding Your First Property: Seek professional assistance from a Buyer’s Agent, Mortgage Broker, and Property Manager to ensure a sound investment.

  3. Working Towards Your Second Property: Capitalize on the positive cash flow from the first investment to secure additional properties.


Rentvesting may initially seem counterintuitive, but when executed strategically, it offers a compelling solution for those seeking homeownership while enjoying the flexibility of renting. Whether aiming to enter the property market sooner, accommodate lifestyle preferences, build a portfolio, rentvesting provides a viable pathway.


Speak with us to get started on your homeownership journey, our finance brokers can help you find the right mortgage and help determine your purchasing budget.




Disclaimer Statement

The information provided in my blogs is general in nature and does not consider your personal circumstances or objectives. We always recommend you seek advice from a professional tax and financial advise before making any decisions about your own finances. Your full financial situation would need to be reviewed prior to acceptance of any offer or product.



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