The idea behind rentvesting is to get a foot on the property ladder and start building wealth through property investment, while also maintaining the lifestyle benefits of renting in a more desirable location. The rentvesting strategy allows people to invest in property without having to compromise on location or lifestyle, as they can rent in their preferred area while using the rental income from their investment property to help pay off their mortgage.This strategy has become increasingly popular in recent years, particularly in major Australian cities where property prices can be very high. It allows people to enter the property market and build wealth through property investment, while also providing flexibility and the freedom to live where they choose.
Let’s say that Jane and Tom are a couple who live in Sydney and love the vibrant lifestyle of the city. However, they find that the property prices in Sydney are too expensive for them to afford, particularly for the type of property they want to live in.
Instead of buying a property in Sydney, they decide to rent a two-bedroom apartment in the city for $700 per week. At the same time, they purchase an investment property in a more affordable area, such as Brisbane or Adelaide, for $400,000. They put down a 20% deposit of $80,000 and take out a mortgage for the remaining $320,000.
They rent out their investment property for $400 per week, which covers the majority of their mortgage repayments. They also receive tax deductions for expenses related to their investment property, such as mortgage interest, property management fees, and repairs and maintenance costs.
As a result, Jane and Tom can continue to enjoy the lifestyle benefits of living in Sydney while also building wealth through property investment. Over time, they may choose to purchase additional investment properties, further diversifying their investment portfolio and increasing their rental income. This strategy allows them to take advantage of the property market without having to compromise on their lifestyle or location preferences.
Let’s further look at Rentvesting Pros & Cons since we have covered an example.
Rentvesting, like any investment strategy, has its pros and cons. Here are some of the advantages and disadvantages of rentvesting:
Pros:
- Flexibility: Rentvesting allows you to have more flexibility and freedom to choose where you live without being tied down to a mortgage in an expensive area.
- Cashflow: Rentvesting can provide a source of income through rental income from the investment property, which can help cover the mortgage repayments and potentially generate a profit.
- Diversification: Investing in property in different locations can help diversify your investment portfolio and reduce your risk.
- Tax benefits: Rentvesting may provide tax benefits such as deductions for expenses related to the investment property.
Cons:
- Rent increases: The cost of rent may increase over time, reducing the benefits of the rentvesting strategy.
- Limited control: Renting a property means that you have limited control over the property and may be subject to the landlord’s rules and restrictions.
- Property management: Managing a rental property can be time-consuming and may require additional expenses for property management services.
- Market risks: Property values and rental demand can fluctuate depending on market conditions, which can affect the rental income and capital gains potential of your investment property.
Overall, rentvesting can be a good option for those who want to enter the property market and build wealth through property investment while maintaining their lifestyle and location preferences. However, it is important to carefully consider the potential risks and benefits and seek professional advice before making any investment decisions.
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