Why is everyone talking about rentvesting?

Aug 13, 2021

Have you ever heard of the term “rentvesting”. If not, that’s okay because for those who are renting or who don’t currently have a property portfolio, this term might be completely new to you. But over the years, rentvesting has become extremely popular especially in Perth – here’s why…

What is Rentvesting?

Rentvesting is a home-owning strategy where you rent a property to live in that’s right for your lifestyle, while you own an investment property that’s right for your budget. For example, you might own an investment property in Singleton and rent it out to tenants, while you yourself rent a property in Shoalwater.

It’s no wonder that rentvesting a home in Perth is becoming so popular, as it’s the perfect opportunity to get your foot in the property ownership door.

Why Rentvest?

At first, it might not seem like this investment makes much sense – why pay off a mortgage and rent at the same time? Wouldn’t it be easier to just buy your own home? The challenge for many is that you may not be able to afford to buy in the area you want, which is why rentvesting (especially in Perth) can give you the best of both worlds.

When you rentvest, you can buy a property and rent it out to cover some or all of your ownership costs, while continuing to rent the home where you want to live. If your investment property is earning you a profit, you could even use that income towards your home rental costs.

Many Aussies see property as a very desirable asset to hold because property values continue to grow over the long term and, importantly for investors, the rent can form a part of their passive income in retirement.

Pros and Cons of Rentvesting:

Of course, like every decision we make there are pros and cons to rentvesting. We’ve listed some of these below, however we strongly encourage you to do your own research to decide whether this type of investment is right for you.

PROS

• Live where you want to live: when you rentvest, this gives you the opportunity to rent in an area that suits your budget, lifestyle and life stage. You might want to live closer to your children’s schools, closer to friends and family or work. Rentvesting gives you this opportunity to choose where you want to live.
• Invest in your future: Having an investment property will give you greater borrowing power and you could also be saving on higher mortgage repayments. This means your money could potentially work harder for you, helping you build up savings for retirement.
• Tax deductions: As a property owner, there are many costs associated with your rental property which are tax deductible, and in some cases, you can claim depreciation on the the building. We recommend speaking to a financial advisor and accounting regarding this.
• Investment property income: As the property owner, your tenants will be paying you rent which you can use towards the mortgage on your investment, or towards the cost of the rental you’re living in.
• Best of both worlds: Buying and selling a property you own can be a costly exercise. As you’ll be renting while you own your property, you will have the freedom to move accommodation more easily or find a more suitable rental.

CONS:

• Emotional cost: Many Aussies dream of owning their own home and while rentvesting would still mean you own a home, you won’t be living in it. This could come at an emotional cost as you will still technically be renting.
• You are a tenant: As you’ll be renting, this comes with its own risks. Many choose to own and occupy their own properties to avoid being a tenant and under the control of the landlord. Renting will also mean that you might need to vacate the property or search for a new rental, which can come with its own challenges.
• Loss of full capital gains tax (CGT) exemption: Capital gains tax (CGT) is the tax you pay on profits from selling assets, such as property. One benefit to owning and occupying a property is that you can get a full exemption of any capital gains tax if you sell the property for a profit. Rental properties are also generally subject to capital gains tax if sold for a profit. Again, we recommend speaking to your accountant or financial advisor about this.
• Everyone has an opinion: Don’t be surprised if family, friends or strangers want to give you their advice about what you should and shouldn’t invest in. Everyone will have their two cents however if you want an objective opinion, we recommend leaving this to the professionals.
• Invest or it’s not a rentvest: The key to rentvesting is actually investing any surplus money into your mortgage. If you don’t actually buy an investment property then you aren’t rentvesting at all.

How to Get Started with Rentvesting:

If this is something you are interested in, at Chalk Property we have some great properties that may be suitable for you, or we can certainly assist you to help find a property if we don’t have it listed. Talk to your Property Manager or contact our office and we will put you in touch with one of our experienced sales consultants.

If you are thinking of investing in property, it always pays to get professional advice from a financial planner or an accountant. Being armed with the right information will help you get into the property market and start to work on securing your future.