To buy or to rent? How about “Rentvesting”?

Rentvesting has been a hot topic in the property world, a term coined to describe a strategy of purchasing affordable investment properties while renting your own home that suits your desired lifestyle.

As we’re witnessing an incredible upsurge in housing prices, this strategy has been on the rise in popularity, especially among younger investors. Have we found the secret to financial freedom? Let’s dissect this new norm into its pros and cons.

Aren’t you paying off someone else’s mortgage if you rent?

Flexibility and a desired lifestyle are what the “rentvestors” are looking for here. A lease will normally last less than 24 months, while a home loan is a commitment of 30 years. And as some will put it, it is a “bad debt” as it takes away all your borrowing ability, diminishes your cash flow and doesn’t generate one single cent for you.

Rentvestors on the other hand can move in and out as they see fit based on their personal, professional or family needs while snapping up affordable investment properties elsewhere without a high degree of emotional attachment that could provide an income stream and/or tax benefits.

Pros & Cons

But as the old saying goes, a coin has two sides. Let’s take a look at the pros and cons:

Pros

Flexibility to live wherever you like, access to lifestyle locations that you could not afford to live in otherwise – and move in or out according to your needs

You can look for properties purely based on budget and growth potential, location is less limited

Potential tax benefits – investors will be able to claim investment property expenses as tax deductions. This might include: mortgage interests, rental expenses and depreciation costs. If the property is negatively geared, there might be more tax benefits

Cash flow – you will receive rental income from investment properties to pay down the mortgage or if the properties are positively geared, this income can help pay your rental costs

Cons

Missing out on first-home owner grant

Less control over residence – landlords are free to adjust rent prices and when they decide to sell the property, renters are forced to move out

CGT by selling an investment property – rentvestors will need to pay CGT when they decide to sell their investment property, in contrast, selling an owner-occupied property does not require CGT payment

To use this strategy or not will hugely depend on personal preference and finance situation. Nothing can compare to having your own home where you build lasting memories with your loved ones. But when you’re not ready to put up a large sum of deposit, why not take advantage of the benefits rentvesting poses and start building your portfolio early. Talk to our people here at Megaward to see what’s best for you and explore your options today!

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Any information or advice is intended to be of a general nature only and has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consult with you financial or investment consult and consider whether advice is appropriate for you.