Is the property market getting further out of your reach? Rent where you want to live and secure your future by investing in a property that's right for your budget.
If you think home prices are astronomical in our capital cities, you’re not wrong. Recent ABS data shows that, on average, the eight capital cities housing prices rose by 16.8 per cent over the last 12 months.
Unfortunately, it’s the first homebuyers who are feeling the pinch. In the past year, loans for first home buyers fell 27.1 per cent. On the other hand, lending for property investors has risen, out competing first home buyers. With first home buyers being priced out of the major capital cities, many are turning to rentvesting to get their foot in the property market.
What is rentvesting?
Rentvesting is renting where you choose to live. But, buying where you can afford. You can live and rent where you want a lifestyle and buy an investment property that’s right for your budget.
Stockland, Australia’s largest residential developer, builds communities where families and downsizers choose to live for a lifestyle. They’re the market leaders in rentvesting because they sell affordable properties in areas people want to live. That means a reliable rental income stream and a great return on investment when it comes time to sell the property.
You may love the beach and work in Sydney CBD, so choose to rent at Coogee. Once you save a deposit, you can enter the housing market anywhere that suits your budget, such as a Stockland property in Springfield near Brisbane. You can continue living at Coogee while investing in property in Queensland.
It may sound like a backward approach to buying property. But there are definitely some advantages to rentvesting.
What are the pros of rentvesting?
The biggest drawcard to rentvesting is you can live wherever you want and also purchase property. You may choose to rent where you live because the area is simply too expensive to purchase. This is often the case with first home buyers in one of our major capital cities. Stockland properties are more affordable as they build communities outside of densely packed cities.
Perhaps you’d like to live close to work, family or friends. You may have kids and prefer to live in a house rather than a unit. With rentvesting, you have more options for where you’d like to live, not just where you can afford to buy.
And, if something breaks, you don’t pay for it. Your landlord should pay for most repairs or maintenance due to wear and tear. For example, the landlord pays for the repairs if you need a new hot water system or the sewage is blocked.
Another major advantage of owning an investment property is earning rent. This rental income can be used to pay off the mortgage or pay the rent where you live. Investing in a property that attracts long term tenants, like a Stockland property, means a more reliable rental income.
Tax deductions are also a big bonus. When repairing your investment property, any expense such as advertising, insurance and even interest on the loan is tax deductible. So, you could end up paying less for these expenses than if you actually lived in the property.
Other tax deductions include pest control, body corporate fees, and servicing costs, such as checking smoke alarms. These tax deductions vary depending on the location of your investment property.
Of course, you have the potential to earn money when you sell your investment property. If your investment property goes up in value, you get a nice profit after the sale.
What are the cons of rentvesting?
When buying property, there are always risks. In today’s market, it’s hard to believe a property may go down in price, but that risk is always a possibility. If your investment property price heads south, you can always hold onto it in the hope it will go up again.
You’ll also need to pay tax on the capital gains made from the sale if you do make a profit. If you decide to live in the property, you only need to pay this tax on the portion of time it was rented out. See the ATO for more information or your accountant.
As you’ll be a landlord, you’ll have to pay for any maintenance costs or repairs from wear and tear. If you purchase a new property, it’s less likely you’ll have many maintenance costs in the first year or two. You’ll also have to pay an agent to lease and manage the property.
If the rental income doesn’t cover the mortgage repayments, you’ll have to make up the difference while paying for the rent of the property you’re living in. But, over time, the rent you earn may go up as you pay off the mortgage.
As you’ll be renting, the landlord could decide to put your rent up, inspect your home or want you to vacate the property. The usual risks that come with renting.
Rentvesting, like any investment, has its pros and cons. Speak to a financial advisor or an accountant to see if it is right for you. If you have a nice deposit, but it doesn’t stretch to where you want to live, don’t limit yourself to properties where you can’t afford. Secure your future with an investment in a rural or country area and live where you want.
