Are you a first-time home buyer but finding it impossible to find a home where you want to live AND in your price range? Many people are instead giving up on the owner-occupied dream and instead taking up rentvesting.
What is rentvesting?
Rentvesting is a term that describes buying an investment property that you can afford but continuing to rent and live somewhere that suits your lifestyle.
For example, you want to live in Sydney’s eastern suburbs but the price to buy is outside of your budget, you buy an investment property in a more affordable but up-and-coming suburb instead. Then you rent out the property you buy to help cover your own rental payments. In the future, you can sell your investment property for capital gain or build a portfolio of investment properties using the equity.
Before deciding whether rentvesting is right for you, do your research to find out if it really is better than the alternative. It can be a complicated strategy that requires a lot of organisation, so making a careful and informed decision is paramount.
Below is a list of pros and cons to rentvesting.
- Continue to live in an area that’s convenient for you.
- Live in an area that you wouldn’t be able to afford to buy in and enjoy a certain lifestyle.
- You have entered the property market earlier than if you continued to save for a larger deposit.
- You can start to build an investment property portfolio and build wealth for your future.
- Flexibility to upgrade or downgrade where you live/move areas to suit your budget and needs.
- Tax benefit – you can claim interest payments and other expenses on your investment property loan as a tax deduction. Always check with an accountant regarding this.
- The ability to purchase an investment property anywhere. The best place to buy an investment property may be nowhere near where you want to live, but because you don’t need to live there, you could purchase an investment property in a regional area of another state, if that area is showing promise that prices will increase over the next decade.
- You don’t own the place you’re living in, so you can’t renovate or make changes to the home to suit your taste.
- No long-term security that you will be able to stay in your rental. You have to factor in the cost of moving every so often.
- You have to be a landlord for your investment property or pay someone to do it on your behalf.
- You have to pay maintenance costs on your investment rental property.
- You could have difficult tenants.
- You can’t take advantage of first home buyer grants or concessions.
- Even after detailed research, the property you choose to buy may not grow in value as quickly as you would like.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.