So you want to invest in the thriving real estate market to guarantee your financial future, but you also want to retain your work and lifestyle in an area where you can only afford to rent. So how do you decide whether to purchase a house or stay where you wish to live? It's a difficult situation. As a result, an increasing number of people who purchase cheap properties in Australia choose to rentvest.
What Exactly Is Rentvesting?
Rentvesting is a developing trend in which a prospective homeowner purchases a house property within their price range and leases it out. Simultaneously, they will rent a house in a desirable suburb that is out of their price range.
This is in contrast to the usual ways of looking for a home to buy as an owner-occupier or an investment property.
For example, if your preferred house is in the inner suburbs of your state's capital, acquiring a home has likely become a challenging prospect due to unaffordability. When employing rentvesting as an investment strategy, an investor might rent the home they want to live in while acquiring a home in a less expensive area.
The purchased home will then be rented out, and the earnings will be utilized to meet your rental bills while also building your investment portfolio.
Is Rentvesting for You?
Rentvesting is popular among those who live in urban and inner-city regions but find property costs prohibitively high. This includes young professionals, first-time house purchasers and those willing to take an unconventional approach to homeownership. The technique is becoming increasingly popular as metropolitan home prices climb. According to the ABS, around 340,000 Australians are rentvestors, accounting for 15 per cent of private tenant families.
While rentvesting appeals to people on a tight budget, it can also make sense for those with a more significant income who want to build their wealth. Regional locations or outlying suburbs may see faster development than where they desire to live, making such homes more appealing as an investment.
Reviewing the Pros and Cons of Rentvesting
Rentvesting has certain disadvantages. It is not without risk, as is any investing plan. For example, if you can't locate a renter, you'll be in a pickle since you'll be dealing with both a lease and a mortgage.
Furthermore, there are advantages to living in your own house, and you may become tired of renting sooner than you think. Rentvesting, on the other hand, may be the way to go if flexibility is what you're looking for. You'll have greater freedom to relocate and travel than if you were an owner-occupier. And, from a financial standpoint, it is much easier to sell or optimize your investment when you are not living in it.
The most significant financial drawbacks include missing out on the First Home Buyer Grant and being subject to capital gains tax, a tax on the profit made when selling a house that owner-occupiers are exempt from. Furthermore, the concept of owning a house is still firmly established in Australian society, so you may encounter some resistance from friends and relatives who don't get what you're trying to do.
When it comes to real estate investment, there is no one-size-fits-all solution. Many techniques will work for different people at various times of their life. Spend lots of time studying for the most remarkable results for your portfolio so that you can make an informed selection.
If you do decide to become a rentvestor, be sure it is a method you can afford. The fact that an investment property is less expensive than your dream house does not inevitably make it affordable.
Before rentvesting, consult one of the best professional financial advisers in Queensland! Here at Swell Financial Planning, we make sure to equip our clients with the necessary knowledge related to managing finances. If you want to make the most out of your financial situation, don't hesitate to get in touch with us for a consultation!