» Rentvesting

Buying your first home vs investment property

BMT team — Tue, 01 Mar 2022 02:57:38 +0000

You’ve saved enough for a home loan deposit, but not enough to buy a property in your dream suburb. You’re now faced with the choice between continuing to save so you can live where you want or buying an affordable property in a less desirable area to get a foot on the property ladder. So, what do you do? This is a common problem facing many Australians who have yet to enter the property market. With house prices having risen at astronomical rates, saving enough for a minimum home loan deposit in many capital cities has become out of reach for many. Fortunately, there is a strategy that can help first home buyers to get a leg up on the property ladder. Buying an investment property first Rentvesting is becoming an increasingly popular home-owning strategy. Rentvesting is when individuals purchase an investment property in an area they can afford, whilst renting a place where they want to live but can’t afford to buy. As a first home buyer you may not be in the financial position to purchase a home in the area you necessarily want to live in. For instance, you currently rent an apartment in Sydney CBD, work in the city and your social life consists of living in the city, but you cannot afford to purchase a home in that area. You could continue to save for a deposit, hoping one day you save enough. Although, this may take many years or even become impossible due to the constant surge of home prices. Alternatively, you could rentvest. This option gives you the opportunity to get into the property market whilst keeping your lifestyle. Let’s say you saved enough for a deposit in a developing regional area with expanding infrastructure and a growing population. Areas like this can be a great investment and bring valuable equity as the house value has potential to increase at a consistent growth rate. After equity has grown, this asset will assist by strengthening future home loan applications and provide security for banks. In turn, this means you could afford a home in your dream suburb a lot sooner than it would have taken to save for the deposit. Benefits of rentvesting include being able to enter the property market sooner, having the flexibility to live in a more enticing area, wealth and equity buildup, increase of cash flow, and possibly, cheaper rental payments than a mortgage. Other advantages include tax deductions like negative gearing and depreciation. By depreciating investment properties, owners can reduce their taxable income resulting less tax to pay. Similarly, negative gearing is when the cost of owning an investment property outweighs the annual income it generates, resulting in a lowered taxable income. Alongside the benefits, there are some possible downsides to this strategy. These include the instability of being a renter, ongoing rental payments, capital gains tax (CGT) incurred if you decide to sell, loss of government First Home Owner grants and higher interest rates that come with property investment home loans. It’s important to highlight that rentvesting may not be an option for individuals seeking First Home Owner Grants. Homeowners must live in their newly purchased home within twelve months for a minimum of six consecutive months before it can be used as an investment property. Best of both worlds It’s possible to have a bit of both worlds with the option of renting out a room or area of a home. Live-in landlords are becoming more common as the need for single room rentals are increasing. This is attractive for students or individuals and may be more practical in cities or areas with local universities. When renting out a room or area of the home you are entitled to claim a portion of living expenses including internet, water and electricity rates, council rates, interest on your mortgage, body corporate fees and property depreciation as tax deductions. It’s always best to speak to a trusted accountant so they can assess your financial position. It’s also important to get a tax depreciation schedule prepared. BMT’s specialised quantity surveyors will ensure all depreciation claims are maximised. And don’t forget, the cost of the schedule is fully tax deductible. For more information on how to claim depreciation on investment properties, contact BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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How to become a property investor while earning less than $80k per year

BMT team — Thu, 19 Sep 2019 06:10:25 +0000

You don’t have to be a high-income earner to purchase an investment property while living in Sydney or Melbourne. There’s a simple solution for those earning less than $80,000 per year who are struggling to get on the property ladder – rentvesting. How to become a property investor by rentvesting Rentvesting involves purchasing a property in an affordable suburb whilst continuing to rent in an area suited to your lifestyle. It’s a great way to get into the property market sooner, particularly if buying a home in the area you live is currently out of reach. By buying an investment property, rather than a home, you can build a property portfolio which can later be used as leverage to help afford a home, or even additional investment properties down the track. For many on a moderate income, buying a property in Sydney or Melbourne has been unachievable in recent years. According to the latest CoreLogic data, the median dwelling value in Sydney and Melbourne is $720,072 and $626,703 respectively. While these figures may be out of reach for those earning under $80,000, there is ample opportunity outside the metropolitan areas for savvy rentvestors. Regional vs Metro Current BMT Tax Depreciation data indicates the majority of Australians don’t look outside their local areas when it comes to buying an investment property, significantly limiting their investment opportunities. FY 2018/19 data shows that 92 per cent of those who live in metro properties only purchased an investment property locally, compared to just 8 per cent who invested regionally. Regional investors are far more likely to invest elsewhere, with 64 per cent owning a property locally and 36 owning an investment property in metro areas. While the stats show some investors are limiting where they buy, those who earn a moderate income should be encouraged by the fact that they fall within the majority when it comes to the average Australian property investor. The latest data from the Australian Taxation Office for the FY 2016/17 found 64 per cent of people who own an investment property have an income under $80,000. For those who do make their way onto the property ladder there are lucrative tax advantages. Owners of income producing properties are eligible to claim expenses relating to holding a property such as property management fees, council rates, insurance, repairs and maintenance and interest on their loan. They’re also eligible to claim depreciation deductions for the wear and tear that occurs to the building. By taking advantage of the depreciation deductions available, investors reduce their holding costs and can even achieve positive cash flow. BMT Tax Depreciation has worked with more than half a million property investors to help uncover tax deductions for the wear, tear and ageing of their investment properties. To learn more about the benefits of claiming depreciation, simply Request A Quote or call the expert team on 1300 728 726.

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Rentvesting – a step on the first rung of the property ladder

BMT team — Thu, 25 Apr 2019 23:46:02 +0000

Rentvesting is a clever way to get your feet on the first rung of the property ladder. It has become more popular in recent years thanks to rising property prices and issues with housing affordability. This was shown in the latest statistics from the Australian Bureau of Statistics (ABS) on Housing Occupancy and Costs for the 2015/2016 financial year published in October 2017. According to the ABS, more than 1.78 million Australian households owned a residential property other than the one they currently reside in. Of these households, 342,000 owned a residential property but were renting their usual residence. Given rentvesting’s rising popularity and ability to help both home buyers and investors to enter the property market, let’s look at what this method involves as well as some of the pros and cons to be aware of. What is rentvesting? Breaking into the property market can be difficult and rentvesting allows you to buy an investment property in an area you can afford while renting a property in a location that suits your lifestyle. Rentvesting can help you get into the property market sooner, particularly if buying a first home in the area you live is currently out of reach. By buying an investment property, rather than a home, you can build a property portfolio which can later be used as leverage to help afford a home, or even additional investment properties down the track. Let’s say you want to buy a four-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 to this problem would be to rent the ideal four-bedroom home in your desired suburb where you want to live and then buy an investment property in a suburb where house values are more affordable. Renting the investment property to tenants will help you to pay off the loan rather than having to use part of your income or savings to meet regular loan repayments. Over time, the property may increase in value, building the equity you need to meet any loan requirements necessary to purchase a home or expand your portfolio down the track. Pros of rentvesting There are a number of pros for those who decide to employ rentvesting as part of their investment strategy. Apart from the obvious financial freedom this method provides, one key benefit is the ability to live in an area that suits your current circumstances. Location is key and often rentvestors will rent in a location that is close to where they work or study, or in an area that is within reach of features that are important to their desired lifestyle such as beaches, parks and restaurants. Given rentvestors are generally of the younger generation, they often aren’t ready to purchase a home in an area where they may not plan to stay for the long term. The flexibility to complete study, travel or move from place-to-place while still purchasing a property as an investment is a drawcard for those thinking about whether to rentvest. Similarly, rentvesting provides an opportunity to live in the property that you want to live in, now. If a property in a desired location is unaffordable, why not rent and achieve the living conditions you want now rather than compromise? Owning an investment property also provides you with a range of tax benefits. In addition to earning a rental income you can claim expenses involved in holding the property such as interest on your loan, property management fees, repairs, insurance, maintenance and property depreciation. These tax deductions are only available if a property is income producing and cannot be claimed on a home. This additional cash flow also helps to make owning a property more affordable. Cons of rentvesting While rentvesting might sound appealing, not all aspects of this strategy are positive. Firstly, when you rent a property there is no guarantee that you can stay there for the long term. A landlord may decide to sell the property or move into it themselves, forcing you to find another home. While notice is required, there may not be enough time to find another property that meets all your desired needs and matches up to your expectations. You also can’t personalise the property. In a rental property you are limited to the amendments and updates the landlord is willing to take out. You can’t renovate to add new features and often even require permission if you wish to hang pictures in any permanent fashion. You have to be willing to compromise and live with what you have. Finally, owning an investment property is not without its risks and you should seek both financial and tax advice. Property markets fluctuate, and you may not achieve the capital gain to produce the equity needed to buy another property in the short term. It’s important to stay in tune with what is happening with prices in the area. Choosing the best rental property to live in while you rentvest Every individual will have a different idea of what they need in order to feel comfortable in their home. Start by making a list of things you desire as well as the things you can’t live without. Do you need a certain number of bedrooms? Is it essential for there to be two bathrooms or a two car garage? Picking a suburb location which has these main features is the next step. Decide where you need to live in relation to work and set a budget of how much you want to spend in rent to help narrow your search. Wherever you choose, check access to transportation hubs and nearby facilities and even do a search to gauge whether vacancy rates for the area are high. This can be handy to know in case you have to move if your landlord decides to make any changes after your tenancy agreement ends. Finding the right investment property in which to rentvest The key is to do […]

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Rentvesting is changing the Australian property market

BMT team — Tue, 12 Jul 2016 06:23:09 +0000

The latest buzz word around the property industry is rentvesting. A portmanteau of ‘renting’ and ‘investing’ which is becoming an increasingly common approach for new property buyers to enter the market. It is pitched as a way to circumvent the issue of lifestyle vs property ownership, but is also a result of ever increasing property values pricing new buyers out of centrally located areas. For the younger generation in particular, rentvesting has become an increasingly popular method to surpass issues of housing affordability. The trend has seen two distinctive types of new investors become more active in the property market. The first are those who choose to continue living at home with Mum and Dad while purchasing a property they might like to live in later in the future. These investors choose to rent the property they own for now for a number of reasons, the main being that it is more cost effective and enables them to readily afford mortgage repayments due to the constant income that rent provides them with. The second category of rentvestors are those who don’t necessarily have the luxury or the option to live at home with their parents. These are investors who rent in less affordable locations where they would like to live whilst purchasing a property in suburbs that are more affordable to enter the market. In this article we will look at: Where do you look to rentvest? The advantages of rentvesting The disadvantages of rentvesting Where do you look to rentvest? Essentially, rentvesting involves buying a property in an emerging area while renting in an already established one. This enables people to enjoy things such as the café culture and night life that the CBDs of cities are known for, without paying the cost of a mortgage to live there. Typically, the cost of a mortgage payment each week in these areas is far higher than it would be to rent, while in other areas, the rental cost and mortgage cost are roughly the same. For example, a nice apartment just a few minutes from the CBD by public transport may cost around $400 per week to rent, however it would be perhaps $800 per week as a mortgage payment. Rentvesters generally purchase a lowered priced property in an area with a strong prospect for growth and consistent rent prices. The rent they receive will pay their mortgage, while they rent a house in an area they want to live in, just as anyone else would. For this reason, rentvesting appears to make sound financial sense. But there are advantages and disadvantages when you consider the other aspects of buying and renting? The advantages of rentvesting Freedom The main pro of rentvesting is the freedom it provides. It enables you to live the lifestyle you desire, while still working towards property ownership. Buying and occupying limits you to a house in a neighbourhood you can afford right away, but an investment property in an emerging area can provide a way to pay the mortgage and build your future financial security. Flexibility Renting in the city gives you the flexibility to move to a smaller or larger home as needed, with relatively little hassle, aside from breaking a lease and the moving itself. The lack of permanency usually presented as a negative for renters, becomes a positive for rentvesters. Additionally, a great place to live may not be a great place to invest. As stated above, the potential rental income from some locations will exceed others. However, the rental yields don’t go up with the price of the property and the owner’s mortgage needs. Instead, they are dependent on the socio-economic factors of the neighbourhood itself. A greater indicator of the rental income possible is the access to the amenities such as transport, public works like parks and the proximity to the main business district, universities and shopping precincts as well as the overall desirability of the area as a fashionable place to live. Generally, this makes it more affordable to rent a house in these areas than attempt to buy a property, as the rent rate will hit a ceiling that is much lower than the weekly mortgage payments. 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, but it you make it your home, you are not entitled to claim any of them. According to the Australian Taxation Office, 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 Depreciation deductions for the wear and tear that occurs to the structure of the building and the plant and equipment assets contained Land taxes Interest on mortgage repayments The disadvantages of rentvesting Renting Rentvesters are still subject to all the same issues that standard renters face. It always feels like a temporary solution, which makes it harder to feel connected to a home and settled. You will have to deal with landlords and Property Managers when necessary repairs are required and you have no power to personalise the property beyond your furniture and perhaps a few pictures on the walls. The changing Australian property dream Renting while owning a property requires the ability to understand the big picture. The aim of future stability pales in significance with the immediate emotion surrounding home ownership. Generations of Australians have dreamed of buying a house and owning a block of land. Purchasing then giving it up to rent and pay someone else’s mortgage can seem counter intuitive and can diminish your happiness at entering the ranks of property owners. What you should consider to make rentvesting work for you Research the areas where you want to invest and rent. Find locations with lower purchase prices but consistent rent rates. In general, properties tend to double in value every ten to twelve years, […]

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