How Rentvesting Could Help You Get Into the Property Market

How Rentvesting Could Help You Get Into the Property Market

This article is sponsored by Westpac.

Residential property prices across Australia are rising. More specifically, in the last twelve months, residential property prices rose 7.5% on average across our capital cities, according to the ABS.

While the stats may be disheartening for first home buyers, there are some strategies you could use to get into the property market. After all, in research conducted by Westpac, 27% of young Aussies said buying a home would best describe their financial goal for 2021. 

The dream of home-ownership is still there, but the way it comes to life may not look how it used to.

‘Rentvesting’ is becoming an increasingly popular strategy people are using as a way to enter the property market and potentially grow their wealth.

Here’s more on the burgeoning trend.

What is rentvesting?

Rentvesting refers to when a person rents a home in an area that aligns with their desired lifestyle while owning an investment property in a more budget-friendly area.

It’s become popular amongst young buyers who’ve been priced out of buying in inner-city areas. For example, the average house price in Melbourne’s inner-northern suburb Fitzroy is 1.4 million dollars, whilst 63% of the population is said to rent in the area in comparison.

Westpac’s data has found that 70% of young Australians are either interested in or already rentvesting to support their ideal lifestyle, showcasing that its potential for flexibility is a huge win.

What are some pros to rentvesting?

There are a variety of potential benefits to rentvesting.

Rentvesting offers young people the potential chance to enter the property market sooner. Buying an investment property in a more affordable area could ultimately mean saving for a smaller deposit. This is attractive to young people who’re renting within inner-city suburbs (that might be outside their buying budget) while maintaining their lifestyle.

Once you’re on the property ladder, there’s also the chance your property could increase in value over time and help build your wealth portfolio. If this occurs, you may be able to sell your property for a profit one day (which could help in the pursuit to buy in your dream suburb). It’s important to research strong-performing suburbs within your budget before buying an investment property to maximise your chances of future profit and always keep in mind that you may have to pay tax on any profit you make.

Another upside to rentvesting is that you may be able to claim tax deductions against your investment property income. This includes expenses like interest charged for loans, rental costs like insurance, advertising, strata maintenance and depreciation costs are claimable on tax.

Lastly, you could use income from renting out your investment property to help pay your mortgage and if there’s any leftover, this could go towards helping to pay off your own home rental costs.

What are some cons to rentvesting?

It’s important to acknowledge that rentvesting may not work for everyone when trying to get into the property market. It is dependent on your budget and needs.

Rentvestors may not be eligible for some government-funded schemes like the First Home Owners Grant. If you’re looking to finance a portion of your first home with a government grant, it’s worth looking into what rentvesting may and may not allow you to do.

Some first home buyers may find it works to their timelines and lifestyle to save for longer to buy a home to live in from day one in their desired area. The ongoing costs of renting and maintaining a mortgage, even if subsided by tenant income, may be a difficult juggle involved with rentvesting.

There’s also a variety of responsibilities that come with renting out your investment property. If you’re time-poor or inexperienced, it may be worth considering hiring a professional property manager to liaise between you and your tenants, however, there will be additional costs involved with this.

Like all financial decisions, it’s recommended to get as much expert advice as possible before rentvesting. Do your research around burgeoning suburbs and market trends, scrub up on the rental market and create your own savings goals — this will help you decide what home-ownership strategy is best for you. It’s important to remember to not give up hope when it comes to ownership — while rising house prices make it harder to get your foot in the door, there are ways to make this happen and continue to live the inner-city dream.

Conditions, credit criteria, fees and charges apply. Credit provided by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714 

The taxation position described is a general statement and should only be used as a guide.  It does not constitute tax advice and is based on current tax laws and their interpretation

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