Due to the steep increase of prices in the property market over the past couple of years, this practice allows first homeowners to buy in a much more affordable market whilst renting in a property or location that has a more appealing lifestyle. For example, buying a cheaper home in a regional or growing suburb whilst renting in a city, close to work and/or family.
What to consider when rentvesting?
It is important to remember to not look for a home that appeals to you personally but a property that offers good rental returns and potential capital gains. This also means that is it beneficial to buy a low-maintenance property that does not attract extra repairs, such as newer brick homes, duplexes, or apartments whereas older properties may require some upkeep to keep the property fit for habitation.
Property investments also provide tax benefits and allow you to claim depreciation costs each year as well as stamp duty, conveyancing and lending fees may be claimed. Capital gains are also a benefit with rentvesting with the possibility of having a decent appreciation value when selling down the track. Eventually, you can use the equity in the investment property or profit from the sale to buy your own home where you want to live.
There may be some downsides to rentvesting, however:
If you are purchasing an investment as a first-time homeowner, you may discover that you don't have the same benefits as a first homeowner living in the property, as investment loans tend to have higher interest rates as well as grants and stamp duty discounts are not applicable. Also, if you were to sell your investment property, you are liable to pay tax on the profit you make.
In addition, you will not have the security of owning your own home when living in a rental property, as may be required to vacate the property if the landlord decides to sell or circumstances change.
If you're thinking of investing in property, it makes sense to get professional advice from a qualified financial planner. With the right guidance, you may be on your way to living the life you want now, while planning for a secure future.
For a free copy of our Property Investors Guide or an obligation-free chat, email our Director, Casey Healey, on casey@c21newcastle.com.au or phone 02 4928 7400 today.