Maybe you’re renting right now and you’re wondering how you’ll ever be able to invest in property, or, maybe you already own a home but you’re wondering how you can make the most of it. Regardless of your situation, rentvesting could definitely be an option for you if you’re looking for the best of both worlds in regards to renting and home ownership.
What is rentvesting?
If you haven’t heard of rentvesting before, it’s all in the name. Essentially, it’s a combination of renting and investing in a property. If you live or want to live in an area where affording rent is significantly easier than affording mortgage repayments, rentvesting would make sense. You would rent in your ideal suburb and then buy in an area that your budget allows for.
How you can own a property
With the current state of the market, it’s starting to look impossible to ever own a property for many young Australians. This is particularly true for the millions of people living in or wanting to live in capital cities where job opportunities are most abundant. Rentvesting allows you to buy in any suburb in Australia, not just the one you want to live in.
For example, you might currently be renting in Melbourne and can’t afford a property. However, you’ve seen that Hobart would be a suitable investment option for you with a rental yield that you’re happy with and positive growth prospects. Most importantly, you can actually afford a property in Hobart.
You might also already own a home but are struggling to meet repayments in a place like Sydney. You could sell your Sydney home and find a place where paying rent is cheaper than paying off your mortgage. Then, find a suburb that you can afford a property in and still reap the benefits of ownership.
Benefits of being an investor
When rentvesting, you would rent out the property that you own. This does come with a couple of its own challenges such as paying for landlord insurance, land tax, water rates etc. However, if you’re looking to make the process as easy as possible, you can use a property management service to take care of your property and tenants.
One of the major benefits of becoming a property investor is the tax incentives. In the case that the costs involved are more than what you’re making from rental returns, you can offset the loss to reduce your taxable income and therefore your tax payable. You can also claim expenses as tax deductions.
Benefits of being a renter
You’ve undoubtedly heard “rent money is dead money.” However, if you manage to find a property where your tenant would be paying more rent than you do, it actually makes a lot of sense mathematically. Of course there are other disadvantages to living in a property you don’t own such as not being able to make changes to it and the uncertainty involved.
However, renting also comes with a lot of advantages. You get to enjoy the flexibility of living wherever you want, even if you can’t afford a property there. You also have more freedom to move to different areas. After building equity in your investment property, you could also eventually own the home you live in if that’s your ultimate goal.
What to consider before rentvesting
If you’re a first-home buyer, it might not make sense to you to buy an investment property before owning your own home. You also won’t be able to make the most of first-home buyer schemes and grants from the government if you’re an investor. Hence, rentvesting might not be ideal for you.
Furthermore, being an investor comes with a lot of financial burden and responsibility. You have to make sure that you’re ready to own a property, even if it’s cheaper than a property you would buy in the area you live in. You’ll have to be managing rent payments and mortgage repayments at the same time.
Make sure to do the math and weigh out the pros and cons to make sure that your decision is the right one. Don’t be afraid to talk to a professional if you’re confused about your options. Financial advisors, mortgage brokers and real estate agents could all give you valuable information. Ultimately, if you’ve never considered rentvesting and want to own a home, it’s definitely worth looking into!
Guest author: Ellen Orton is the Head of Business Operations at OpenAgent.com.au, an online agent comparison website helping Australians to sell, buy and own property.