First National Real Estate Lakeshores Blog - Central Coast and Lake Macquarie

WHY STRUGGLE WITH INVESTING WHEN YOU COULD BE RENTVESTING

Many first home buyers struggle with choices around investing, as competing issues arise and the realities of the modern market challenge their preconceived ideas. Australians are vigorously encouraged to enter the property market, but not everyone has the capacity to relocate to an affordable area. Chances are that if you are currently renting, you made lifestyle choices about your location, rather than financial ones. The flexibility of renting is that you can enjoy the affordability of a lifestyle that may have been less accessible if you wanted to buy in the same area. This is where ‘rentvesting’ comes in. 

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What is Rentvesting?

So how do you get the best of both worlds? If you have managed to save a deposit while renting, you are now in the position to do what thousands of others are doing and ‘rentvest’ – this means rent and live where you want to live, but invest in a property somewhere else that is more affordable.

Rentvesting has become popular as inner-city housing prices creep ever slowly northwards. Millennials (those born between the early – mid 1980s and the mid-90s to early 2000s) got onto this early by continuing to live at home after completing school, starting their professional career and saving the majority of their wage as mum and dad kept them fed and sheltered. Many of them could then purchase an investment property in their mid 20s and either continue living at home or choose to move on to rent elsewhere.  

Rentvesting more than anything offers a wider range of lifestyle choices for the investor. Young professionals can rent a stylish inner-city apartment and cut back on the commute to their city office, whilst quietly monitoring an outer suburban investment property. Families can rent a 4-bedroom home in an ideal location and make their first steps into the property market in an area they can afford. Empty nesters can use part of the capital from the sale of the family home to buy a house in a regional growth area, then move into a low maintenance rental apartment to enjoy their new-found freedom.     

The Pros and Cons of Rentvesting

Rentvesting can offer great advantages to the right buyer, but it is not without its flaws. If your priority isn’t your own comfort, then you can be more focused on a low-cost investment – buying with your head rather than your heart. This means you can start out with a smaller deposit than you might have thought and potentially not only cover the mortgage with the incoming rent, but also some of the expenses as well and maybe even a portion of your own rent.

The downside however, is that you have to be certain you can always tenant the property and that rental yields in the area will continue to cover your costs. Otherwise you may find yourself paying two lots of rent and let’s assume that rapidly draining your bank account is not part of your long term financial plan.   

Rentvesting also provides a flexibility that traditional home ownership does not. People are more mobile these days and may move a dozen times or more throughout their lifetime. Your housing needs as a university student differ from the needs you have as a young professional. The world is more accessible than ever before and pursuing overseas career opportunities has become much more common. The desire to settle and ‘nest’ that comes with marriage and family has a use by date and when the kids leave home and the decades of hands on parenting are over, the desire to scale back to a simpler life is common.

Rentvesting means you can make all of these choices and more without having to buy a new house every time. You maintain the same investment, make new investments, contribute more to pay off the mortgage as your circumstances permit – all the while living whatever version of your life you choose to live.  

This of course is completely in contrast to the values of those who want to buy a home and start a family. Many would disagree with the notion of buying an investment property before they purchase their own home and consider rentvesting to be jumping a few rungs on the property market ladder unnecessarily. There’s also the notion of ‘dead money’ that gets paid to rent. It could be argued however that rent money is investing in a lifestyle for a specific time in your life – much like paying for a hotel on an extended holiday! 

Most importantly though, rentvesting offers greater tax advantages than home ownership does. The Australian Tax Office recognises and allows for costs incurred through ownership of an investment property, but not your primary residence. Rentvesting means that you can claim depreciation, as well as costs of repair and maintenance of the property (and appliances), that you would not be able to claim if you lived in the home yourself. There are also tax benefits if the property is negatively geared, which reduce your taxable income.

In the end, choosing to rentvest or not comes down to personal values and the direction you anticipate your life moving in. If your values lean towards the more traditional and you want to build a family and a home, then rentvesting may not be for you. If you anticipate a life of change and variety and entering the property market at an achievable level is your priority, then rentvesting may be your ideal strategy.