What is Rentvesting？
Rentvesting could be a wise strategy for buyers who want to enter the real estate market. This can help them deal with the problems of high housing prices and relatively low deposits. Literally, rentvesting is a combination of renting and investing, which means that one can rent where they want to live and buy a property in an area that within budget and then rent it to others. The popular living areas are usually priced high and unaffordable to purchase, so that people can pay rent instead of repaying the mortgage directly. This changes the traditional thinking of “buying a house for myself” and helps buyers enter the real estate market as early as possible without waiting for a few more years to save more deposits. This way of maintaining their living standard is increasingly popular, especially among young buyers.
Pros of Rentvesting
-Lifestyle:
The place of residence is not limited to where buyers can afford, and they can choose an area with a good location and convenient infrastructure.
-Rental income:
Income from investment properties can repay loans and pay rent.
-Potential tax benefits:
Buyers can use negative gearing and depreciation of investment properties to get tax benefits, further increasing their cash flow to invest more.
-Potential capital gains:
If the investment property appreciates in value, it can be sold for a profit in the future.
Cons of Rentvesting
-Instability of primary residence:
The tenant will be in a passive position if the landlord requests a rent increase, or asks to vacate the property.
-Ongoing property cost:
Property owners are responsible for the maintenance and management of their investment property, bank loans and leasing agent fees, etc. If the rental income is less than the property cost, the owners will need to make up the difference in addition to paying their own rents.
-Capital gains tax:
If buyers decide to sell their investment property, they need to pay tax on any capital gains. Owner occupied properties are excluded.
-No access to the Government first home buyer benefits:
Renters do not have access to the first home buyer benefits, which applies to certain first-time and new home buyers who will be living in their property for the first year.
-Potential capital loss:
If the investment property falls in value, it might be sold at a loss.
Tips for Rentvesting
-The area of investment property should be equipped with education, medical resources and convenient living and transportation conditions. Also, try to avoid too much competition for rentals among overfilled property areas.
-Regardless of personal preference, buyers should consider property as a tool to improve their overall financial position, mainly looking for properties with low cost and high return on investment.
-Buyers should break even, and the best situation is that the rental income can cover the investment property cost.
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