The Great Australian Dream of owning property is still alive with Rentvesting
Over the last few decades, it has become harder and harder to own a home in the suburb you want to live in. As most people live at or near our capital cities, property prices in these areas, especially in Sydney and Melbourne, have become unaffordable for the vast majority of first time home buyers.
Enter Rentvesting which means renting property in the suburb you love as your home; while purchasing an investment property in a growth suburb you can afford. There are many affordable locations worth looking into around Australia which offer good value for money and offer growth opportunities.
If you buy the right property, your rental income as a landlord will not only cover your mortgage repayments but give you positive weekly cash flow, with a foothold in the property market. You then rent a property in a suburb you want to live in with those good schools, great beaches, close to family and friends -plus other first-class amenities.
Recent surveys point to a dramatic rise in rent-vesting. A Mortgage Choice survey found that in 2014, 20% of investors were rent-vestors. In 2016 the numbers had risen to 30%.
As a renter and a landlord, you get the lifestyle you want now while building for your future.
But-is rent money dead money? In a Reserve Bank of Australia discussion paper, it was noted that since 1955 the economic position of renters and buyers was the same. Rent-vesting is not the same as renting as you are still building for your future.
The benefits of rent-vesting mean you can enter the property market sooner and you live in the suburb you want. Equity from your investment can help build your property portfolio.
Rent-vesting also means that you can move around easier if your job takes you to other parts of Australia or the world. In our age of casual employment, rent-vesting can keep your options open, meaning you can pack up and move easily while your investment keeps on growing.
There are also tax benefits to rent-vesting as you can claim interest payments on your investment property as a tax deduction. Expenses on your investment property such as repairs and depreciation can all be tax deductions.
Rentvesting Case Study:
Mike bought his first property, with the help of his parents, in Rhodes, Sydney in 2008. He moved into the property to benefit from the first homeowner’s grant. After a year, he realised that living there on his own was costly and meant he was losing out on tax deductions and there are incentives to invest. So he rented an apartment to live in, rented out his property, and over time, he bought more properties in affordable growth locations in other states. He now has a property valued at over $3million, rents where he lives near a beach suburb in Sydney and carefully manages his portfolio with the help of professional property managers.
Remember to do your homework-there will be costs for your investment property like strata fees, rates, maintenance costs and land tax. Always have 5% of the purchase price just to cover costs like stamp duty, conveyancing to get into the market.
In days gone by, our parents and grandparents would not have used nor needed this strategy but it has proven to be a popular solution for investors who look forward to owning a home in an area they love, sometime down the track while investing in their future now.
It may not be the emotional choice of living in a home that you own-but it is a practical one. Remember who won the race? The hare or the tortoise!