What Is Rentvesting?
By Peter Gibson
As property prices rise across Australia, rentvesting has become a popular property investment strategy. Essentially when you rent a property that suits your lifestyle and buy an investment property that suits your budget, it’s an appealing way to enter the market. To help you decide whether this strategy is right for you, here are some pros and cons to consider.
What Are The Pros of Rentvesting?
Lifestyle
If you want to live in an area that is too expensive to buy in, then rentvesting may be for you. One of the most attractive parts of this property investment strategy is that you can have the lifestyle you want without the hefty property price tag. You may want to live in a particular suburb because of its proximity to shops, schools, parks or transport. Whatever the reasons, rentvesting means you won’t need to sacrifice your lifestyle.
Rental Income
Another advantage of rentvesting is that you can still reap the rewards of property investment. Buying an investment property in a suburb that you can afford is a great way to build your wealth. By renting out your investment property, you can use your rental income to pay your mortgage or rental payments. Or, if you invest the savings made from this strategy, you could use your rental income to buy more properties and grow your portfolio.
Advantages of Being A Tenant
Rentvesting also lets you enjoy the benefits of being a tenant. These perks include not being responsible for the rental property’s maintenance, repairs, rates or insurance costs and having more flexibility to move, upsize or downsize depending on your lifestyle needs. As a tenant, you can save yourself lots of money, time and stress.
What Are The Cons of Rentvesting?
Negative Tax Consequences
When it comes to rentvesting, there are some negative tax consequences that you should know. While owning an investment property means you can claim tax deductions on certain expenses, you will be hit with a Capital Gains Tax (CGT) if you sell your property and make a profit. The CGT amount depends on a range of factors but is usually a substantial sum.
Home Ownership Costs
As part of this strategy, you will also be a landlord, which means taking responsibility for your investment property’s home ownership costs. These expenses can include your property’s management, maintenance, repairs, rates and insurance. If these costs are more than your rental income, you’ll need to find the funds while still paying your rental payments.
Disadvantages of Being A Tenant
Being a tenant also has its drawbacks. Since you do not own the property you are renting, you may have to move if the owner decides to change tenants or sell. As well, your rental amount may increase, meaning you might be unable to afford the property and have to move. What’s more, being a tenant means that you can’t make changes or renovations without the landlord’s approval, which restricts you from making the place feel like your own.
Is Rentvesting Right For You?
Rentvesting could be a great property investment strategy if there’s a significant difference between what it costs to rent and buy in an area where you want to live. For instance, if you want to live in Surfers Paradise to be near the beach but the properties are out of your budget, then you could consider renting in the area instead and buying where you can afford. Before you decide what is right for you, we recommend speaking with a licensed financial advisor.
If you want to learn more about rentvesting in the Gold Coast, we would be happy to assist. At ManageMe, we work closely with you to understand and achieve your property investment goals and are committed to providing you with the highest standard of professional property management. Contact us to find out how we can help you maximise your investment potential.
Before making any financial decision, you should seek independent financial advice from a licensed financial advisor.
