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06 August 2019
Rentvesting is where you rent the property you want to live in, typically in a favoured suburb or location, and then buy an investment property in a suburb you can afford.
It’s an alternative way to getting into the property market and achieving home ownership sooner rather than later.
But just like any investment strategy, you need to look into following Pros and Cons.
Pros
Ability to grow your investment portfolio
If you are smart with your ‘rentvestment’ and the rent you have coming from your tenants is greater than your loan repayments, you will benefit from extra income. You can then reinvest these extra funds elsewhere and use it to grow your property portfolio at a much faster pace than if you were waiting for a property to appreciate in capital growth.
Live where you want, invest where you can afford
Buying your first property in a sought after location can be out of reach for some people, especially if you are a first time buyer. While you are saving up for a deposit to buy a house in your dream location, prices could be increasing at a faster rate than you are able to save. Rentvesting allows you to live in the area you want while buying in an area you can afford, allowing you to enter the property market much sooner using a smaller deposit.
Tax incentives
There are a number of attractive tax benefits that are available to property investors that are not available to owner occupiers. The costs associated with owning an investment property that are tax deductible include advertising for tenants, repairs and maintenance, home insurance, water and council rates and more.
Freedom and flexibility
When you rent, you have the ability to move around as you please, whether that’s to a different suburb, state or country. This ties in well if you live a life where you’re always on the go, or often travel for work or leisure.
Cons
Rent money
When you are renting you are essentially paying off someone else’s mortgage, to a lot of people they see this as a waste of money. If you would prefer to live in the home you are paying the mortgage off of, then rentvesting is probably not for you.
Time consuming
Rentvesting means you are a tenant and a landlord at the same time. You have to make sure your property investment is being looked after by the tenants and stay on top of maintenance requests which can be very time consuming.
You are a tenant
Although you are a landlord to your investment property, you are still a tenant in the property you are living in, which means dealing with rental inspections and the uncertainty of having to leave should the owner decide. The home you live in doesn’t belong to you and is quite often only temporary, plusany changes you want to make to the property will have to go through the landlord. Rentvesting won’t appeal to buyers looking for a long term permanent home.
Miss out on The First Home Owner Grant
The First Home Owner Grant is only available to owner occupier first home buyers who are buying or building a new home, this doesn’t count for investment properties. If you choose to rentvest instead of build a new home, you will forfeit your eligibility for the grant.
Also, when it comes to selling your investment property (unless you have lived in the property for 12 months) you have to pay capital gains tax (CGT) which means paying tax on the profit margin.
To be successful at rentvesting, you need to look at the rental returns and capital growth predictions of a median priced investment property and then compare this to the rental returns and capital growth of more expensive property that you would want to live in.
If you are considering rentvesting, it is important to do your homework. You may also want to consider hiring an agent for advice on where to buy and for help with finding a property.
Kind Regards
John Kemsley
Managing Director
Platinum Realty Group
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