Rentvesting has become a popular strategy for individuals looking to enter the property market while maintaining flexibility and lifestyle choices. This approach involves renting a property to live in while simultaneously investing in one or more investment properties. While rentvesting offers unique advantages, it also has its drawbacks. In this blog, we will examine the pros and cons of rentvesting, helping you make an informed decision about whether it’s the right strategy for you.
Pros of Rentvesting:
- Flexibility and Lifestyle Choice: Rentvesting allows individuals to enjoy the benefits of both renting and investing. By choosing to rent in areas that align with their lifestyle preferences, individuals have the freedom to live in desirable locations without being tied down to a mortgage or property maintenance responsibilities.
- Property Investment Opportunities: Rentvesting enables individuals to enter the property market as investors without having to compromise on their desired location. This strategy can help build a property portfolio, generate rental income, and potentially benefit from capital growth.
- Tax Benefits: Rentvesting can provide tax advantages through negative gearing. By offsetting rental property expenses, such as mortgage interest, maintenance costs, and property management fees, against rental income, individuals may reduce their taxable income and potentially receive a tax refund.
- Diversification of Investments: Rentvesting allows investors to diversify their investment portfolio beyond traditional asset classes. By investing in different locations and property types, individuals can spread their risk and potentially benefit from varied market conditions and growth opportunities.
- Potential for Capital Growth: Investing in property provides the opportunity for long-term capital growth. While renting in a preferred location, individuals can simultaneously benefit from the appreciation of their investment properties, potentially building equity over time.
Cons of Rentvesting:
- Lack of Homeownership: Rentvesting means sacrificing homeownership in the short term. Some individuals may prefer the stability and security of owning their own home rather than renting, as it provides a sense of ownership, potential capital growth, and the freedom to modify the property to suit personal preferences.
- Capital Gains Tax Liability: When you invest in property, you’re subject to capital gains tax (CGT) upon selling the property. In Australia, CGT is applied to the capital gain made on an investment property when it is sold. This can significantly reduce your overall returns, especially if you’re in a high tax bracket or if the property has appreciated substantially. Rentvestors need to carefully consider the impact of CGT on their investment returns and plan accordingly.
- No access to First Homeowners Grant: One of the benefits of purchasing a property as a first-time homeowner in Australia is eligibility for the First Homeowners Grant (FHOG), which provides financial assistance to eligible first home buyers. However, as a rentvestor, you may not be eligible for this grant because you’re not purchasing the property as your primary residence. Missing out on this grant can mean a significant reduction in the financial assistance available to you when purchasing your investment property.
- Delayed Gratification: Successful property investment often requires a long-term approach. Rentvestors may need to hold onto their investment properties for several years to realize significant capital gains and generate substantial rental income. This delay in gratification can be challenging, especially for those who are looking for quick returns or need immediate liquidity.
To obtain more info regarding finding the best investment property or a suitable development site for your specific needs and goals, arrange a free strategy session with our buyer’s advocate.
A strategy session includes the following:
Assessment of your current situation
Discover property investment strategy options
Recommendations related to the right property investment strategy for your specific situation
Confirm next steps
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