Rentvesting: Why, When, Where & How

By Andrew Winter | More Articles by Andrew Winter

Investing whilst you rent is actually a simple explanation of this neologism, a trendy blend of words to describe a modern day act. Usually first home buyers find themselves priced out of the market they actually want to buy/live in, rather than giving up.

Decide to continue renting in their desired area, whilst purchasing within a more inexpensive location, that home will be rented out the aim to cover holding costs and to benefit from capital gain, which when sold, should enable you to buy a home at the next stage of life. Quite simply you get your foot on the property ladder in a different locality to where you live day to day. There are an abundance of pros and cons with this concept and certainly is not an option to suit all. However if you really do want to own your own home and this appears impossible where you want to be, could this be worth considering?

From my perspective and experience, there are three fundamental elements you should consider before you decide to even start the process.

Ask yourself, are you really sure you cannot buy to live in? Could you not compromise on the suburb, convenience, review lifestyle/work/desirability and size of the accommodation? Apart from the inner 25kms radius of Sydney you can buy something almost everywhere for under $400,000, often much less. This will be simpler tax wise, you can benefit from state concession/incentives, negotiate the most competitive home loan rates etc. This should always be your first option in my opinion.

Decide if you want to buy in an area you will want to live in the future, even a home that could fit your requirements in years to come. You’ll save on purchase/sale costs have an instant home hopefully with equity waiting for you. It can be used to step up to the forever home plus you will locked into the market you may want to be in the future.

If you do not have any area in mind this is when investment strategies need to come into play and sadly this can be a minefield. Literally where do you start? Certainly not by being tempted by the latest property hot spot, the fact it is hot means prices have already risen you’re a little late! I often suggest areas you know due to family/work or personal knowledge you’ll have an instant insider knowledge of that market. Noting housing markets perform in cycles and at different times. I believe buying to rentvest in an area completely unknown to you is a more risky strategy, so treat it as such.

Lenders consider rentvesting as investing, so you really should review your options in depth with your home loan provider, what can they really offer you, what are the additional costs and constraints associated. Consider and research the tax implication of the income, ensure you know exactly what you can and cannot off set. Don’t have an Accountant, just call the ATO direct they really can advise you for free.

I would never want to dissuade anyone from buying their first home, only consider rentvesting as an alternative failing all else. In 2014 a White Paper was commissioned by the RBA, this actually concurred there was little difference between the economic successes of home owners versus renters, since the mid 1950’s. I would say there are many flaws with that research, but it does show buying a home does not always make financial sense, only you can decide what form that will take.

Andrew Winter

About Andrew Winter

Andrew Winter is one of Australia's most respected and popular real estate authors and commentators, News Limited property journalist and host of Selling Houses Australia, Love It or List It, and Tiny Houses Australia.

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