With property prices and interest rates rising, many Australians are finding it hard to buy their dream home in the area they love.
But rather than taking on a big mortgage, more people are choosing ‘rentvesting’.
Rentvesting, or rent investing, means someone rents a home in their preferred area while purchasing an investment property in a more affordable location. It’s a clever way to get into the market without sacrificing lifestyle. About 15% of renters in Australia are now ‘rentvestors,’ according to the Australian Bureau of Statistics (ABS).
So, what is rent investing? And is this the right step for you?
In this post, the My Property House team will explore rent investing, its risks and rewards, and whether it’s a good idea.
The Rent Investing Approach
Let’s say you’re currently renting in an expensive city like Sydney or Melbourne. You want to stay in the area, but purchasing a home there seems impossible.
Instead, you buy an investment property in a more affordable suburb or even a different state where the market has better prospects for growth. Meanwhile, you continue renting in the location you prefer.
Benefits of Rent Investing
Rent investing offers a range of benefits that make it an attractive strategy for many young Australians. Here’s what they are.
- Flexibility to Live Where You Want: Renting and investing allows you to enjoy living where you want without the financial burden of owning a home there.
- Potential for Higher Returns: By choosing growth areas, you can build wealth through property appreciation and rental income, even if you don’t live in the home you own.
- Tax Benefits: Rent investing comes with financial perks, like tax deductions on loan interest, maintenance costs, and management fees. You can leverage these to make your investment more affordable.
- Diverse Portfolio: Rentvesting allows you to spread your investment risk by owning property in multiple areas. This way, you benefit different market conditions and protect your investments from downturns in any one location.
Turning a Liability into an Asset: In renting and investing, the property isn’t just a cost—it’s a money-making asset. Rent from your investment can help cover your mortgage payments.
Who Should Consider Rent Investing?
Rent investing can be a smart move for:
- Young professionals who want to live in bustling city centres, but can’t afford to buy there.
- First-time buyers who want to get their foot on the property ladder without giving up their ideal living spot.
- Investors who want the freedom to choose where they live and invest.
Finally, those unsure about where they’ll settle- perhaps due to job changes or family plans- can use rentvesting as a way to stay flexible while growing their financial future.
How Rent Investing Differs from Traditional Homeownership
Rent and invest is quite different from traditional homeownership because it separates where you live from where you invest. Most homeowners buy a property with the intent of living in it. In contrast, rent investors treat properly solely as a financial asset.
The shift in mindset is key to rent investing. You’re no longer tied to the idea that your home must also be your greatest financial asset. Instead, you choose properties that will give you the best return, regardless of where you want to live.
Risks to Consider
Like any investment, investing rent comes with its risks- and you must be aware of them.
- Market Fluctuations: Property values can rise or fall over time. Picking a location with solid growth potential can help mitigate this risk, but no investment is immune to market changes.
- Ongoing Costs: While rentvesting offers flexibility, you still need to cover costs like property management, repairs, and mortgage payments. These expenses can add up, especially if you’re managing multiple properties.
- Vacancy Risks: If your rental property remains vacant for a long time, you’ll be responsible for covering the mortgage and other expenses out of pocket- which could put a strain on your finances.
What to Consider Before Rent Investing
Before jumping into rent investing, there are a few key factors to think about:
- Financial Readiness: Make sure you’re in a stable financial position. You’ll need to manage both your rental expenses and the costs of owning an investment property, including mortgage payments, maintenance, and possible vacancies.
- Property Location: Do your research on areas with strong growth potential. The right location can help you get a good return on your investment.
- Long-Term Goals: Rent investing works best when it aligns with your long-term plans. Consider your financial and lifestyle goals, and whether rentvesting helps you achieve them.
- Tax Implications: While rent investing offers tax benefits, it’s important to understand how they work. Consult a financial expert to make the most of these deductions.
Risk Tolerance: Are you comfortable with the risks involved, such as market fluctuations or vacancies? Make sure you have a plan to handle potential downsides.
Final Thoughts
Rent invest is a fantastic opportunity to enter the market and purchase a home and rent in an area you would like to live in, but may not be able to afford to purchase. It’s an increasingly popular strategy for younger buyers or anyone struggling to afford property in expensive areas.
My Property House can source a property for you that is in a suburb where property prices are likely to increase, and great tenants are easy to find. They can assist you in working out your finances and develop a home-owning strategy that will meet your needs.
The present tax system is great for property investors. You could get various tax deductions on your property investment and property maintenance costs. Our Property Specialists are aware of these deductions and how you can use them to become a homeowner.
If you are currently renting a home because you can’t buy a home, consider talking to a My Property House Consultant. They are experienced and have assisted many renters become property owners and realise the great Australian dream of owning their own home. To find out more contact My Property House today.
