Dreaming of homeownership but can’t afford to buy in your ideal suburb? Rentvesting could be the perfect solution.
What is Rentvesting?
Rentvesting allows you to rent in a location that fits your lifestyle while purchasing an investment property in a more affordable area. This approach offers the perks of property ownership without sacrificing the flexibility of renting in your preferred suburb.
With Australian property prices on the rise, rentvesting has become a popular choice for many aspiring homeowners, especially younger Australians in high-priced cities.
But like any financial decision, it comes with pros and cons. Let’s break down the key advantages and disadvantages to see if rentvesting aligns with your goals.
Pros of Rentvesting
1. Enter the property market sooner
Rentvesting lets you step into the property market by purchasing in a more affordable region while continuing to rent in your chosen area. Buying in regional or outer suburbs is often far less expensive than purchasing in cities like Sydney or Melbourne.
2. Maintain your preferred lifestyle
With rentvesting, you can enjoy living in a prime location near work and amenities while owning property elsewhere. You essentially live where you want without compromising on property ownership.
3. Tax perks
Owning an investment property can come with tax benefits. You may be able to deduct expenses such as interest payments and maintenance costs, and also take advantage of negative gearing when your rental income is lower than your expenses.
4. Build equity through capital growth
By selecting an investment property in an area with good growth potential, you can build equity over time. This can help you grow your portfolio or eventually buy a home in your preferred location.
5. Diversify your financial strategy
Rentvesting allows you to invest in property while keeping your financial options open. Instead of locking all your resources into a home, you can diversify by building a portfolio of income-generating properties.
Cons of Rentvesting
1. No first-home buyer perks
As a rentvestor, you won’t qualify for First Home Owner Grants or stamp duty concessions, as these only apply to owner-occupied properties.
2. Ongoing rental costs
While rentvesting has financial advantages, you’ll still have to pay rent where you live. Rising rental costs could limit your savings and put pressure on your budget over time.
3. Property management and maintenance
Owning an investment property comes with ongoing responsibilities. You’ll need to manage tenants (or hire a property manager), cover maintenance expenses, and ensure the property stays rented to avoid vacancy periods.
4. Market fluctuations
Property values can be unpredictable. If the market declines or rental demand weakens in the area you invest in, your property may lose value or fail to generate the expected rental income.
5. Increased debt and complexity
Rentvesting can complicate your finances. Managing a mortgage on your investment property while paying rent can create additional debt, and some lenders may view your situation as higher risk when applying for loans.
Is Rentvesting right for you?
Rentvesting lets you break into the property market while enjoying the flexibility of renting. It offers lifestyle benefits and potential financial gains, but it also comes with risks. To decide if it’s right for you, be sure to:
If you’d like to investigate Rentvesting further, talk to us today. We can help you make an informed decision.