People have been buying and selling properties and homes as long as history can record. By and large, it’s a proven way to grow wealth in almost any economy. But methods and approaches can certainly change over time, as we are currently seeing with the normalising trend of ‘rentvesting.’ An ideal option for people who are wanting to get into the real estate market, without sacrificing their lifestyle.
But what is rentvesting? Rentvesting is defined as renting one property to live in, while investing money in ownership of other properties to build a portfolio. It is a smart, long-term wealth-creation strategy that allows one to experience the best of both worlds.
One of the biggest benefits of rentvesting is that it can allow you to live a comfortable lifestyle in the location you want, without having the higher expense of owning the property itself. Depending on your ideal suburb, a mortgage and other significant ownership expenses will cost you a lot more. If you want a Bondi Beach lifestyle, for example, owning land there is going to cost you an arm and a leg. But renting may be a much more realistic goal – one that will leave you with some money for investing.
Another popular application of rentvesting is for younger people who don’t have enough capital to own their own home and invest for the future. For those with the option, they can live at home with their parents while making mortgage payments on an investment property. That investment property can largely pay for itself, if you can keep it occupied. And that’s a lot better than holding cash in a savings account, with the hope that interest rates will go up!
Furthermore, there are significant tax breaks for those who choose the rentvesting route. According to an article from BMT Quantity Surveyors, there are at least nine potential tax deductions for investment properties, providing that you don’t live in them. These deductions include:
- Water and council rates
- Home insurance
- Tenant advertising
- Agent fees and commission
- Pest control, cleaning and gardening bills
- Repairs and maintenance
- Depreciation deductions for wear and tear on improvements
- Land taxes
- Interest on mortgage repayments
Rentvesting also gives you as an investor better leveraging power with the banks because your borrowing capacity isn’t tied up in your own home. Property leases are a relatively short-term obligation, so banks don’t view it in the same way they do existing mortgages. Essentially this means renting your own residence will give you better flexibility when it comes to financing your investment properties.
Rentvesting is a home-owning strategy that is becoming increasingly popular. According to the ABS (July 2019), an estimated 340,000 Australians were said to be rentvestors. In conclusion, if you are looking for a way you can still live the life you want now, while planning for a secure future – the answer may be rentvesting.