What is Rentvesting?
Rentvesting is a home-owning strategy where you rent a property to live in that fits your lifestyle, while you own an investment property that fits your budget. This is because in the current property market, many Australians cannot afford their dream home now, but do not want to be left off the property ladder altogether.
So what may be some of the benefits and downsides to this strategy of property investing?
Pros:
- Enables you to own a property but still choose to live in inner-city and more expensive areas.
- Provides flexibility to move jobs, cities, or countries, knowing that the investment property can be rented and earning income.
- Can help eliminate emotions if it is a pure investment purchase. You can work to a model, and only purchase when the price and specifications meet your chosen criteria.
- Own the property that you might want to retire to one day. It allows the renter to pay off your mortgage over the years, and then when you are ready and able, your dream property is waiting for you at a time that suits you.
- If purchased in your personal name, and you are earning a taxable income, the interest payments may be tax deductable on the investment property against your personal taxable income. You will need to confirm this with your accountant for personal tax advice.
- Fixes, costs and maintenance may also be tax-deductible. Again, you will need to confirm this.
Cons:
- You will pay capital gains on the capital increase in the property value when/if you sell. This is in contrast to your primary residence where no capital gains tax may be payable as your personal home is Capital Gains Tax exempt at the time of writing in early 2022. But hey, is making a profit really such a bad thing?
- For times when the property goes untenanted and therefore no rent coming in, it may prove an expensive period to pay costs, mortgage repayments, etc.
- The interest rate that can get charged on an investment property can be higher than that for self-occupied.
Note: the list of Pros and Cons above are general. The ones that may be relevant to you will depend on your own financial situation.
Rentvesting provides a way to own property but keep flexibility
Rentvesting can work with all sorts of property types, especially if the property is tenanted over the long term, and can provide the investor with flexibility. Please seek professional assistance for any personal investing and tax advice.
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