Rentvesting gives you the freedom and option to rent a place at your preferred location while you make rental income through your investment in another location.
It has become popular among first home buyers, who want to get into the property market but not at the expense of the lifestyle they’ve created at a particular location.
This means you effectively spend less to live in a suburb where you want to live until you can afford to buy a house of your own.
So, is rentvesting as good as people say it is? What are the caveats? And how can you avoid those? Let’s find out.
Rentvesting Explained
Let’s say you love your life in Sydney. You love cafe hopping, you enjoy the nightlife, and can’t think of living anywhere else. But buying your own place in Sydney? That’s something you can’t afford.
Rentvesting allows you to keep your life in Sydney at the same time invest in a property somewhere else that actually makes more financial sense.
Investing in a reasonably-priced property in an outer suburb allows you to generate rental income and minimize your repayments.You can even use the rent from your investment to pay off your mortgage.
You can also use the capital growth to leverage the equity when you eventually decide to buy your own home.
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Benefits Of Rentvesting
Rentvesting can grant you a plethora of benefits. Here are a few:
Don’t Compromise Your Lifestyle
You can enjoy the lifestyle you want without any sacrifices. With rentvesting, you can stay where you want to stay and don’t have to move to a remote location.
Buy a Property Faster
Rentvesting allows you to buy an investment property in an affordable, high-growth area and rent where you actually want to live. You will be growing and setting yourself up for a future dream house.
Save Taxes
Investment properties come with tax perks. Interest, maintenance, council rates, and insurance are tax deductible. Meanwhile, your rent covers just your living costs. You don’t have a surprise bill eating into your budget.
Flexibility
Life changes fast and you may get a new job or a relationship, start a family, or just need to move. As a renter, you can adapt to these life changes without the stress of selling a home.
Drawbacks Of Rentvesting
When it comes to rentvesting, not everything is rosy. Even taxwise, rentvesting is a good strategy. But there are caveats.
Primarily, you can’t escape the Capital gains tax, which you’ll be charged on any profit you make when selling your investment property.
Here’s the golden tip: investment properties that are held for more than 12 months will only incur tax on behalf of any gain. You can, of course, avoid CGT altogether when selling an owner occupied home.
Another drawback is that you will be at the mercy of your landlord. If you don’t have a proper rental contract, you could be given 30 to 90 days of notice to vacate the property. This can be quite a hassle if your life revolves around the place you are renting in.
Who is Rentvesting for?
Rentvesting is popular among first-time buyers in their 20s and early 30s, who want to break into the property market without giving up their lifestyle.
It’s perfect for people who:
- Don’t have equity in another property
- Are finding it hard to save a big enough deposit
- Want to live in prime metro areas for career, lifestyle, or family reasons
Research backs this up as well. A 2017 state custodians survey found 74% believe rentvesting is a smart move for people struggling to buy their first property.
Final Words
Rentvesting can be beneficial for you if you want to enjoy your lifestyle but invest in property at the same time. But for that, you need an investment loan, right?
Well, at Home Loan Expert, we understand investment strategy and can help you get a great deal on investment loans. Call us on 1300 889 743 or fill in our free assessment form and we can help you get a great deal on an investment loan.