Rentvesting: Owning Smarter, Living Better

Understanding Rentvesting

Rentvesting allows you to rent a property that suits your lifestyle while owning an investment property that fits your budget.

With the surge in housing prices in urban areas, this strategy has gained popularity, particularly among younger buyers. So why consider Rentvesting?

At first glance, it may seem counterintuitive to pay rent and a mortgage simultaneously. Wouldn’t it be easier to simply purchase a home?

The answer isn’t a one-size-fits-all solution. It depends on your financial situation, stage of life, and desired lifestyle.

For instance, you might be single and eager to enter the property market, but the homes you desire are beyond your financial means. Alternatively, you may have found an excellent rental property, and the timing isn’t right for a move. Or perhaps you’re content with inner-city living for now, but you anticipate wanting a more spacious home in the future.

Rentvesting offers the best of both worlds. You can buy a property and rent it out to cover some or all of your ownership expenses while continuing to rent the home where you live. If your investment property generates a profit, you can even use that income to cover your rental costs.

Ultimately, you may end up spending a similar amount to what you would if you were solely renting or if you owned your own home. The key difference is that with Rentvesting, you have the freedom to live where you desire while simultaneously getting a foothold in the property market.

The Pros and Cons of Rentvesting

Advantages

Freedom to choose your living location:

As a Rentvestor, it does not restrict you to purchasing property in areas that align with your budget.

Lower maintenance costs for your rental property:

As a tenant, you are generally not responsible for regular wear and tear maintenance costs. If issues arise, such as problems with the hot water service, your rental agent will coordinate the repairs according to your rental agreement.

Potential tax benefits:

You may be eligible to claim certain expenses related to your investment property as tax deductions. These expenses can include loan interest, rental costs like insurance and advertising, and depreciation costs. The Australian Tax Office provides detailed guidelines on when these claims apply.

Rental income:

You can use the rental income from your investment property to pay down the mortgage or cover your own rental costs.

Potential for capital gains:

If the value of your investment property appreciates over time, you have the opportunity to sell it at a profit.

Disadvantages

Uncertainty regarding your primary residence:

You may be required to move if the property owner decides to vacate the premises or change tenants. Additionally, you may need to make the property available for inspections, and there is a possibility of rent increases.

Ongoing homeownership expenses:

As a landlord, you will typically bear the responsibility and cost of repairs for your investment property. Additionally, you may need to pay fees to a leasing agent. If your rental income falls short of your ownership costs, you will need to cover the difference in addition to your own rental expenses.

Liability for Capital Gains Tax:

If you decide to sell your investment property, you will be subject to tax on any capital gains. Most owner-occupied properties are exempt from Capital Gains Tax (CGT). For a detailed explanation of how this tax works, refer to the guidelines provided by the Australian Tax Office.

Ineligibility for the First Home Owners Grant:

Rentvestors are not eligible to receive the First Home Owners Grant, which is intended for certain first-time homebuyers who will live in their property for the initial year. Eligibility requirements vary depending on the state or territory. Additional information can be found on the official website of the relevant state or territory government.

Potential for capital loss:

In the event that your investment property experiences a decrease in value, there is a possibility that you may have to sell it at a loss.

It is important to carefully consider these pros and cons before embarking on a rentvesting strategy. While it offers flexibility and the opportunity to enter the property market, there are also risks and responsibilities involved.

Ultimately, rentvesting can be a viable option for those who want to strike a balance between their desired lifestyle and property ownership aspirations. By carefully assessing your financial situation, long-term goals, and personal circumstances, you can determine whether rentvesting is the right strategy for you.