The term ‘rentvesting’ is gaining popularity in the Australian property market. The idea is that you rent where you want to live and buy where you can afford (and where you’re most likely to get the best gains).
The Australian Bureau of Statistics records that around 340,000 Aussies are rentvestors. It’s no wonder why it’s such a popular investment strategy. Being a renter and a landlord at the same time means you can use your tenants to pay off your mortgage and sometimes your rent too.
What are the advantages of rentvesting in Australia?
#1 An easier way into the market
The earlier that you are able to enter into the property market, the sooner you can start creating wealth through capital gains. Rentvesting provides an easy way, especially for the younger generation, to enter into the market early and start building those gains. As the market rises, you will then start to create further wealth that you can use to purchase another property.
Having two properties generating wealth means you will likely have two groups of tenants paying off your mortgage.
The good thing about rentvesting is that it allows for flexibility. You can live where you want to live. Perhaps, at the moment, you are unable to purchase a property in your ideal home location. Maybe you need to relocate closer to where you work or to where your family lives.
In the meantime, you can live in a rental property and easily change homes if your circumstances require. For example, if you get a great job halfway across the city, you can move closer to work without giving up your investment property. By contrast, if you are chained to a mortgage it is not so easy to just pick up your things and move on.
It costs less to live as a renter compared to being an owner-occupier. Many people can’t afford to buy where they really want to live. Rentvesting allows you to maintain your lifestyle preferences, and live where you want (whilst at the same time building your wealth).
#3 Save money in the long term
Many people believe that the rentvesting strategy will literally double their costs. However, depending on how the investment is structured, itis possible to actually save money by renting where you live and claiming investment benefits where you own. If you buy the right property, you could potentially save thousands of dollars a year.
At the end of the day, it is much cheaper to rent in an expensive location, than to purchase a property in such a location. The chances are that you are able purchase a cheaper property in an area where growth is likely to occur. This is a great way to enter into the market and start building wealth.
#4 Tax benefits
The costs that are involved when owning an investment property are tax deductible, and these are significant benefits that can be taken advantage of. The Australian Tax Office says that some of the tax deductible expenses include advertising for tenants, body corporate fees, cleaning, repairs and maintenance, gardening, pest control and council rates. This means that even if you aren’t generating a profit from your investment property, you can take advantage of negative gearing in order to create a positive result.
To rentvest or not to rentvest in the Australian property market: Deciding the best strategy for you
There is no right or wrong answer when it comes to reinvesting. It all depends on your individual circumstances. The best way to find out what most appropriate suits your situation is to do your homework. EDA Property has qualified property investment advisors that can help choose the best investment strategy for you. Please get in touch with us today to start discussing your future in the Australian property market.