The great Australian dream of home ownership is something that Australians collectively aspire to attain, regardless of house prices and housing affordability. With the continued growth across major cities like Sydney, Brisbane and Melbourne, as well as an ever-increasing cost of living, many people looking to purchase a home may feel disheartened. If you are wondering if you will ever have the financial ability to purchase your dream home, ‘Rentvesting’ is a strategy that is becoming increasingly popular and can help combat increasing house prices.
In this article we will explain what rentvesting is, the pros and cons of rentvesting, and what rentvesting in Sydney might look like.
What Is Rentvesting?
Essentially, rentvesting is when you rent a property to live in and an investment property that is much more affordable to buy than the property you rent.
This investment strategy might be the key to future ownership for Australians who can’t currently afford their dream home. Instead of buying the property they aspire to live in, rentvestors opt to rent a property in an area they enjoy living in, and purchase a more affordable investment property somewhere else. Oftentimes, the rental income received from the investment property will be enough to cover the majority of outgoings, making it easier to pay off.
In the meantime, they continue living in a way that suits their lifestyle whilst building a property portfolio and benefitting from capital gain increases of the investment property. The potential for long-term property price growth could be considered one of the biggest benefits of investment properties, regardless of whether it is your dream home or not.
In the Sydney property market, the demand for rental properties has been on the rise in recent years. According to data from the Real Estate Institute of New South Wales (REINSW), the average rent for a Sydney property reached $525 per week in 2022, an increase of 5% over the previous year.
You have probably seen recent footage across the internet with street long queues at open houses for rental properties, and this trend is expected to continue. Many experts predict that rental prices will continue to rise in 2023, especially with the recent interest rate increases.
Benefits of Rentvesting
Rentvesting has many benefits and is allowing many Australians to live within their means whilst working towards their financial goals. Below are a number of benefits of rentvesting:
The nature of renting means that you are given more room for flexibility, allowing rentvestors to upgrade, downsize, move suburbs or change lifestyles without being tied down to a mortgage.
Getting a Foot in The Property Market Sooner
Rentvesting allows you to enter the property market much earlier by purchasing a more affordable property, instead of having to save for a bigger deposit to purchase your ideal home.
A solid property investment could be the catalyst to build a life-changing property portfolio that will provide you the opportunity to generate wealth, ultimately making the purchasing of your dream home that much easier in a competitive and growing property market.
You can claim interest payments on your investment property loan as a tax deduction. In Australia, property investors can claim deductions for a range of expenses, including interest on the mortgage, property management fees, and insurance. This can help to reduce the overall cost of your investment, making it more affordable and increasing your potential return on investment.
As a tenant, it is unlikely that you will be responsible for any maintenance costs caused by natural wear and tear of the property you are living in, which means money saved. You also do not need to commit to any of the upkeep.
Of course, investing in rental property does come with its risks. The property market can not be predicted, and there is always the possibility that your property may not appreciate in value as much as you had anticipated. Additionally, unlike the property you live in, your investment property will require maintaining and finding tenants, which can be a time-consuming and sometimes challenging task.
Despite these risks, many first-time investors will reap the benefits of investing in rental property instead of sitting out and waiting for the ‘perfect’ property. However, with the right property, you can enjoy a steady stream of income, tax benefits, and the potential for long-term growth in the Sydney property market. If you’re considering entering the property market for the first time, you should consider the opportunities that might be available to you through rentvesting.
An Example or Rentvesting
Rentvesting can be a difficult concept to completely grasp, so we will break it down for you with the following example.
Sally, a 26 year old woman, works in finance in Sydney’s CBD earning $85,000 p.a, and has finally saved enough money for a home deposit. With recent interest increasing, her borrowing capacity has slightly reduced, however she has been approved for a $440,000 home loan. Sally enjoys being close to Sydney’s beautiful beaches and having a short commute into work, but most properties that provide that lifestyle will be out of her budget.
By utilising the investment strategy of rentvesting, Sally can purchase a more affordable investment property further away from the beaches and the CBD, successfully entering the property market quickly and with relative ease, whilst continuing to live in her desired area to suit her current lifestyle.
In conclusion, rentvesting can be a great strategy for those looking to enter the property market. By purchasing an investment property in an area with strong rental demand and renting a home in a more desirable location, individuals can gain the benefits of property ownership whilst still enjoying the lifestyle they desire. However, it’s important to consider the financial implications and conduct thorough research before making any decisions. It’s also a good idea to consult a financial advisor or real estate professional to determine if rentvesting is right for you.
Be sure to contact our team at Rose & Jones to see how we can help you find a property that will be a great fit for your rentvesting future.