Where you want to live is not always where you can afford to live. Rentvesting lets you live where you want, while getting a foot on the property ladder.
What is rentvesting?
Essentially, rentvesting is about securing your financial future without sacrificing your lifestyle.
Rentvesting is when you buy an investment property within your budget and rent somewhere you would prefer to live.
For example, say you want to buy a three-bedroom home in a popular Melbourne suburb, but the sale prices in the area mean these homes are out of your reach. The rentvesting solution would be to rent the ideal three-bedroom home in your desired suburb and then buy a property in a suburb where house values are more affordable.
Buying in a more affordable suburb will mean you can enter the property market sooner, using a smaller deposit. This could save you years of missing property price growth while you try to save the deposit you would need for your dream home.
In theory, your investment property should increase in value, while your tenants pay off your debt and increase your equity. This equity can in turn be used later, as bank security to buy a home in your preferred area or to purchase another investment property.
Learn more about using equity to purchase a second property
Benefits of rentvesting
- By investing in a cheaper market, rentvesting may be less financially straining, affording you the lifestyle you desire
- Many first homes are not our ‘dream’ homes and are often located where one can afford, further from work, amenities, family and friends. There will be less compromise on features such as number of bedrooms, car spaces and bathrooms
- Rentvesting allows you to continue the lifestyle you want now, while at the same time start to build a property portfolio to accelerate the growth of your wealth. You may be able to structure your investment so that the cost of holding the investment property will be covered by the rent you receive and the tax deductions available to property investors
- Rarely is the best place to invest the same as where you choose to live. When you don’t have an emotional attraction to where you are investing, like you do with where you live, the choice of investment can be based purely on the potential for gain
- The ’try before you buy‘ approach means you can rent and live in your preferred location or property style, to ensure you are happy with your lifestyle choice before purchasing. It also gives you time to grow your savings or increase your surplus cash flow
Finding the right investment property
Research, research, research…. find locations with lower purchase prices, but consistent rental returns. Be strict about the property being an investment and remove the emotional attachment of buying a home. Think of it as a means to an end, rather than the end itself and enlist the right help and research tools to make sure you have everything covered and act as an objective outsider to help you make sensible decisions.
Property research tool, PropCalc uses property specific information to provide you with the real cost to owning an investment property. The tool provides the user with key suburb data and features the ability to include changes in interest rates, maintenance costs, council rates, insurance and much more.
Consider the rentvesting tax benefits
One of the main advantages of rentvesting is the tax breaks. An investment property makes you eligible for a huge number of deductions. According to the Australian Taxation Office (ATO), the expenses you can claim on include:
- water and council rates
- home insurance
- tenant advertising
- agent fees and commission
- pest control, cleaning and gardening bills
- repairs and maintenance
- land taxes
- interest on mortgage repayments
- depreciation deductions for the wear and tear that occurs to the structure of the building and the plant and equipment assets contained within, like ovens, carpet and flooring, window treatments, fans and many more items approved by the ATO
Sound too good to be true? When it comes to depreciation, ensure you have a comprehensive tax depreciation schedule in place to capture all possible deductions and maximise your return.
It’s as easy as contacting the expert team at BMT Tax Depreciation on 1300 728 726.