Rentvesting is a trendy phenomenon that we’re seeing coming out into the marketplace now. Rentvesting is a strategy around renting where you want to live or where you can afford to live, and then invest where you can afford to invest.
But is it for everyone? Let’s find out.
Pros and Cons of Rentvesting
One of the great benefits of rentvesting is that if you’re working in an area on a contract basis, or you want to try living in a coastal area for a while but you don’t want the commitment of buying a property there because you may not be there forever, this can be ideal for you. You’ve got flexibility and the opportunity to take the six or 12 months lease.
If you’re a young first-time buyer and still living at home, you want to make the most out of the property and you want to get into it. But your cashflow’s going to be severely affected by going and buying a principal place of residence, which obviously gets no rental income. In the instance of being a rentvestor, you can continue to live at home and buy that investment property and get rental yield as well. You could also rent somewhere at equal or lesser rent which will definitely improve your cash flow position.
There is currently no tax benefit in your principal place of residence. The interest component and the expenses are not tax deductible. One of the great things about renting somewhere is that the landlord or the property manager can fix it for you. Now, if you had to fix that yourself as in a principal place of residence, there’s no tax benefit. But with your investment properties, most of that is tax deductible.
One of the things that you may consider a negative is you don’t own where you live, so if you want to paint a wall or put in a new kitchen, it’s generally not something you can do.
One of the big things is there’s really not a lot of security in a rental property. When the owner decides to sell the property, moves back into the property, that means you need to relocate. If you’re the type of person who loves that security, knowing exactly where you’re going to be for the next five, 10, 15, 20 years, buy a principal place of residence, that way it’s yours.
Pro Tip: After purchasing a principal place of residence, convert that property to an investment. That way, you will be able to get some tax benefit from that, rental income, and then choose to go and rent.
As we all know, time is one of the most important ingredients to a successful investment portfolio, but as with everything, there are some negatives, and it’s not always perfect for everyone.
If it’s something that works for you, and if you have any questions in relation to this, or any of our videos, or any of our strategies, give us a call, (07) 3170 3760. Cheers.