What is rentvesting you ask? Let us break it down.
Say you want to buy a three-bedroom home in Perth’s western suburbs, but the market price is way out of your budget. The rentvesting alternative would be to rent a three-bedroom house in the area you want to live in, and buy a property in a suburb more affordable to you. Rent that property out to help cover your own rental payments and pay off your mortgage, and sell later for a capital gain. Instead of buying a home, you’re buying an investment property.
Let’s do a little math…
The three-bedroom house in the western suburbs will cost you $3000 a month in mortgage repayments. Renting a home in the same area will only cost you $1200 a month. The difference being $1800. Rentvesters would say that’s a saving of $1800, which can now be invested somewhere else. This solution allows you to live the lifestyle you want now, for less, and build a property portfolio at the same time.
Sooner property investment. Those who would traditionally be unable to enter the property market are now more capable of doing so. Any home bought becomes an asset, and if managed correctly, can be sold at a later date for a profit...a profit which can help purchase a better property.
You can still live in the home you want. Rentvesting means you CAN live in that dream home, and you don’t have to worry about the hefty mortgage prices.
Building a portfolio. Rentvesting allows you to build wealth and invest without compromising on the lifestyle you want to live.
Flexibility. Rentvesting give you the freedom to travel, and depending on your circumstances, you can easily upgrade or downgrade homes to meet your financial situation, something which can’t be done easily if you’re paying the mortgage.
Saving for your dream. With someone paying rent to you from your investment property you can save to buy your dream home faster.
Tax benefits. The tax benefits are tipped in favour of investment. Owning an investment property means expenses like depreciation and repairs can be written off as tax deductions.
Rent money is dead money. For many, the idea of rent money being a waste will be a major deterrent. You have to ensure the balance between what you are being paid and what you are paying is worth your while.
You don’t own the dream home. You may love living in the home you are renting, but you don’t own it. There is always the possibility of having to move out.
You can’t make changes. As the previous point stated: you don’t own it. This means you are unable to make changes to it. You can’t just paint the walls and renovate the living space.
Capital gains aren’t always in your favour. Houses generally appreciate in value, however in the current market, capital gains have reached a low and it is possible for houses to sell for less than they were purchased for.
Ineligible for the First Home Owner Grant. Even if you are buying your first home, the fact that it will be used as an investment property means you are ineligible the receive the grant.
The real advantages listed above come from renting AND investing. The key being to have your money in the market at all times, then you can really maximise the benefits of this strategy. That being, it not only creates a more affordable and flexible lifestyle, but can also supercharge your wealth.