The pros and cons of rentvesting
Sydney’s sky-high property prices have made home ownership a distant dream for many. But what if there was a way to enjoy the vibrant city lifestyle while building wealth? Enter rentvesting. Keep reading to learn more about rentvesting and its pros and cons.
What is rentvesting?
Rentvesting is a strategy where you rent a property in a location you love, often a desirable suburb, while simultaneously investing in a property you can afford. It’s about separating where you live from where you invest. It allows you to enjoy the lifestyle benefits of your rental property without the burden of a hefty mortgage and to build equity in your investment property.
Why rentvest?
Rentvesting gives you the best of both worlds. It allows you to get your foot on the property ladder with a property you can actually afford, which is particularly important for first-time buyers with smaller deposits. Then you can continue living where you want, i.e. the Northern Beaches, in a rental property.
By investing and renting, you can cover some or all of your home ownership costs. If you choose the right investment property and start turning a profit, you can invest that money directly back into your rental. While you might come out evenly at the end, the difference is you’re living where you want and diversifying your investment portfolio simultaneously.
The benefits of rentvesting
- Lifestyle: Rentvesting allows you to live in your dream suburb without the financial pressure of owning. You can enjoy the amenities, cafes, and lifestyle you desire without compromising your financial future.
- Low maintenance costs: When you rent, your landlord is responsible for natural wear and tear maintenance.
- Wealth building: By investing in a property, you’re building equity. Your mortgage repayments gradually reduce the loan amount, while property values can increase over time, leading to capital gains.
- Diversification: Owning a property can be seen as a form of diversification in your investment portfolio. It can provide a steady rental income and potential long-term capital growth.
- Tax benefits: Many tax benefits are available to property investors rather than owner-occupiers, including deductions on loan interest, rental costs, and depreciation fees.
- Flexibility: Unlike owning a home, rentvesting offers greater flexibility. If you need to relocate for work or personal reasons, you can vacate your rental property without the hassle of selling.
The disadvantages of rentvesting
- Less home security: As a tenant, you’re subject to the landlord’s rules and regulations. You may face rental increases, difficulties with maintenance, or unexpected eviction due to selling.
- Negative gearing: While negative gearing can provide tax benefits, it’s essential to understand the complexities and potential risks involved and seek professional financial advice.
- No access to grants: The First Home Owner Grant is only accessible if you live in your investment property for a year.
- Home ownership costs: A pro may be low maintenance costs on your rental. But on the flip side, a disadvantage as a landlord is dealing with these costs on your investment property. You also have to factor in property management fees.
- Capital gains vs. capital loss: When selling your investment property, you’ll deal with one or the other, which both have their pros and cons. Capital loss means selling at a loss, while you typically have to pay tax on capital gains.
Rentvesting can be a smart financial move for many Sydneysiders, but it’s essential to weigh the pros and cons carefully and to buy the right property. Consider your lifestyle preferences and long-term goals, and seek advice from a financial advisor to determine if rentvesting aligns with your overall financial plan.
Do you want to learn more about rentvesting?
Contact the Home Property Agents team if you want to rent or buy in Neutral Bay and the Northern Beaches, or would like to ask any questions about buying to rentvest and our property management services.
