For new investors or home buyers looking to enter the property market, rentvesting is a great way to get your foot in the door.
Rentvesting is when you buy where you can afford and rent where you want to live. For most new home buyers, it’s very difficult to purchase your dream home on the first go. It takes time to build up equity and grow your income so you can afford some of the more expensive homes that most people typically aspire to.
By rentvesting, you can have the best of both worlds, but there are some key things you need to consider when looking at rentvesting or buying.
Advantages of Rentvesting
Buy Sooner: Purchasing a house in a blue-chip location can take a long time, given the amount of money you need for a deposit and the overall level of home prices. With rentvesting, you can invest in more affordable areas, allowing you to enter the market sooner. That means you can capitalise on the growth instead of waiting years just to save a deposit.
Buy in Growth Areas: Australia has thousands of housing markets, making it unlikely that the area you want to buy in offers the best growth potential. By renting in that area and investing elsewhere, you can take advantage of faster growth potential in the investment location. This can actually accelerate your journey and help get you into your dream home sooner.
Boosts Borrowing Capacity: Following the traditional path of maxing out borrowing capacity to buy a PPOR can also slow down your investment journey. Rentvesting allows you to continue building your portfolio while maintaining borrowing capacity. That’s because rents are typically a lot lower than a mortgage for a comparable property in most areas.
Rent in Better Locations: Renting in a really good location is often cheaper than buying, especially when considering mortgage payments and other costs like council rates and maintenance. Rentvesting allows you to make the most of great areas that have access to all the lifestyle and amenities that you want without the price tag to match.
Tax Benefits: Purchasing an investment property also provides tax benefits, as costs and interest payments are tax-deductible. For owner-occupiers, there are very few tax benefits at all, except for the capital gains tax exemption.
Advantages of Buying
Owning Your Own Home: For many people, they simply want to purchase a home for their family and they want the security that comes with that. In the end, most people are rentvesting to afford something better down the track, but for some people, they need that security right now. There is an emotional cost involved in being a renter, so this approach depends on personal priorities – building a property portfolio or owning a home immediately.
Capital Gains Tax: Investing in property is subject to capital gains tax on profits, whereas your PPOR is exempt. This can be a significant amount of money if you hold onto your property for a long period of time.
Upside Potential: Just because you’re buying your own home right away doesn’t mean it’s a poor investment. In fact, when people buy a home to live in, it often turns out to be a great investment because they buy with their heart and need all the boxes to be ticked. The only mistake new investors might make is buying a house and land package, which will likely not perform as well as many established areas. It’s also possible to renovate, subdivide or develop when you own your own home as ways to add value.
Government Incentives: There are a host of Government incentives for home buyers whereas there is very little assistance for investors. First home buyers, in particular, are able to access low deposit Government-backed loans, stamp duty exceptions, and grants depending on what state they’re in. This can make it a lot easier to get into a property when you are starting out and save you tens of thousands of dollars in things like stamp duty or Lenders Mortgage Insurance (LMI).
Choosing between rentvesting and buying ultimately depends on your financial goals, lifestyle preferences, and risk appetite. Rentvesting can offer a practical and strategic way to enter the property market sooner while traditional buying provides the emotional satisfaction of homeownership and potential long-term stability.
There’s no right or wrong answer, but it’s far more important to get started investing today rather than waiting. Whether that’s an investment property or your own home.
If you’re interested in getting started investing in property, but not sure where you should begin or what your long-term plan and strategy should look like, feel free to get in touch and we can discuss the best options for your situation and financial goals.