Rentvesting – the pros and cons unveiled

“Rentvesting” is where you rent where you want to live and own an investment property elsewhere.

This has long been touted as an investment strategy, especially for younger people, but it can be more than that for some people; it can also be a lifestyle choice.

Benefits of Rentvesting

For younger people, rentvesting can be a really wise financial decision.  And it can help you live your life as well.  Some of the benefits include:

1. You get into the property market sooner

Rather than saving for your forever home (which can take a long time) you can buy a (cheaper) investment property much earlier if you decide you rentvest.  This strategic decision helps to get you into the market sooner, and thus be in a position to benefit from capital growth.

2. Interest and most other expenses are tax deductible

Interest on your loan, maintenance, property management, insurance, rates etc – all these fees and more are tax deductible.  Whereas if you bought your own home early these expenses need to come out of your salary and you won’t receive a tax offset.

3. Live your life!

You can go off and live your young years and enjoy them, letting your investment property build you equity whilst you have fun.  This is even more achievable and attractive if you acquire a cash-flow positive or positively geared asset.

4. Extra income stream

You have an extra income stream from the rent.  With the correct research and expert guidance, you may also be able to acquire a cash-flow positive or positively geared property too, which means you effectively come out on top at the end of the financial year.

5. Say goodbye to FOMO

You take the pressure off mentally!  Society and the fear of missing out (FOMO) drives some people to think they have to buy their own home early; this fear and haste can result in a poor decision.  Rentvesting takes this pressure off.

6. No DIY or maintenance – more time to have fun

When you’re young, you don’t need to do DIY and maintenance – you can focus on enjoying life, building your career and salary, and let your investment do the hard yards without the overhead of domestic duties.

And by renting the roof over your head, your landlord/property manager will take care of all your maintenance and repairs.

7. You are doing something good for the community

You are doing a positive thing for the community – as a landlord you provide a roof over someone’s head.  We are in the middle of a rental crisis and it is the private investors who provide the rental pool.

Being a landlord (or rental service provider, which we believe is a much better way to think about this very important role in the community) is a very positive and worthwhile thing to do.

8. Helps when it comes time to buy your PPOR

When it comes time to buy your PPOR (maybe settle down etc) you will have both equity and income from an investment property, all which may help you when applying for financing.

9. You learn about so many things!

    1. You learn about the power of investing.
    2. You learn about cash-flow.
    3. You learn about finances and lending.
    4. You learn about managing a business – you must treat property investing like a business; be very organised with your admin and records etc.  This is a great skill to learn.

Many of us don’t get taught these things when you are young.  These are all excellent transferable skills you may be able to utilise in your normal career as well.

All these lessons when learnt early can really set you up for great outcomes later in your life.  You can also teach others these skills – this may be your friends, family or even your children.

 

That said, older people and even very wealthy people choose to rentvest.  WHY?  Well everyone has their own reasons but generally speaking these people may be at a point in their life when they don’t want to maintain their own home and want to live a more relaxed lifestyle and let others take care of maintenance and repairs; also they may want all interest repayments to be tax deductible.

I know of someone who has over 15 properties and they don’t live in any of them; rather they rent in places they really want to live and live off the capital growth and rental income from their investment portfolio.

 

Now can be a great time to rentvest – WHY?

Interest rates have increased (albeit stalled as of April 2023) but all your interest is 100% tax deductible.

Rents are rising due to the low supply – higher yields are available now.

Very low vacancy rates – easy to get good tenants and much less change of untenanted dwellings.

Prices have dropped, so it is possible to get a great buy now if you know where and how to find the best investments.

Another property upswing will come and if you get in now you can then ride the next wave to boost your wealth.

 

Downsides of Rentvesting

As with any advice, we always like to make our clients aware of the positives and negatives.  So what ae the downsides to rentvesting?

  1. If you have saved up some cash, you will likely need to use this for a deposit for the investment property, so it can eat into your cash reserves. The critical thing here is to understand this is an investment in your longer team future; sacrificing this cash now could mean you have a much more financially free life later when you wish to retire (early).
  2. This may delay the purchase of your own home/PPOR – if you are determined to buy a home in 6-12 months and rentvesting reduces your cash savings too much, it may have an impact on this own home dream.
  3. If you are young and this is your first home, you may not get the current 1st home grants available as you are an investor. You can buy it and live in it for 12 months, then move out later and rent it though.  (please ensure you get up to date advice on the current Government grants and schemes as these do change and vary by State, so expert advice here is recommended)
  4. As you will be renting, you are never 100% secure especially if your lease has expired. This is a risk you must be aware of.

Always seek expert advice

When making any investment decision, always seek expert advice from qualified and independent experts.  The Niva Property team can help you with property investment advice and also help you acquire a quality A-grade investment to suit your goals.  You should also seek advice from your Accountant and/or Financial Planner.

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