The Australian property market can be daunting for first-time investors and young professionals. Saving for a large deposit in a competitive market leaves many wondering if homeownership is even a possibility. Fortunately, there’s a strategic approach called rentvesting.
Rentvesting can help you enter the property market and build wealth while enjoying the flexibility of renting in your preferred location.
What Is Rentvesting?
Rentvesting involves strategically purchasing an investment property within your budget, typically in a different location, while renting a property that suits your lifestyle. This allows you to:
- Become a property owner: Gain exposure to the property market and potentially benefit from long-term capital growth.
- Build wealth: Owning an investment property helps you build wealth through potential rental income and capital appreciation.
- Enjoy flexibility: You can live in a neighborhood that aligns with your current needs and preferences without compromising on your long-term investment goals.
While rentvesting offers numerous benefits, it’s important to consider all aspects before diving in.
The Downsides of Rentvesting
- Missing out on first-home buyer grants: Rentvesting doesn’t qualify for these government incentives, meaning you might miss out on initial financial assistance. However, the long-term benefits of owning an investment property can outweigh this initial incentive.
- Capital Gains Tax (CGT): When you eventually sell your investment property, you may be liable to pay CGT on any capital gains accrued. Consulting a qualified accountant will help you understand your potential tax obligations.
- Cash flow shortfalls: Carefully analyse potential rental income and ensure it covers most, if not all, of the mortgage repayments and ongoing costs. Unexpected vacancies or repairs can disrupt your cash flow.
- Management responsibilities: Managing an investment property involves responsibilities like finding and vetting tenants, handling maintenance issues, and complying with legal requirements. However, a property management service can manage the investment property for you, allowing you to focus on your career and lifestyle.
The Next Steps
If you’re intrigued by the idea of rentvesting, here are some actionable steps:
- Consult a financial advisor: Discuss your financial situation and goals to determine if rentvesting is suitable for you.
- Research the market: Explore potential investment locations considering rental yields, capital growth potential, and affordability. Connect with experienced real estate agents for local market insights.
- Seek professional guidance: Consider seeking advice from a qualified accountant to understand the tax implications of owning an investment property.
Remember, rentvesting isn’t a one-size-fits-all strategy. By carefully evaluating your personal circumstances, conducting thorough research, and seeking professional advice, you can determine if this approach can empower you to achieve your property ownership aspirations.
Everyone has an opinion on property. This article isn’t intended to sway you one way, but we hope it has helped you consider whether rentvesting is right for you.
Get in touch with us if you need a recommendation for an accountant or real estate agent. We have good relationships with some of the best ones and would happily recommend them to you.
Alternatively, book a call with us to get started on your property journey.