Pros and Cons of Rentvesting

The benefits and downsides of rentvesting vs. buying, and ultimately, is rentvesting a good idea?

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Firstly, what is rentvesting?

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As the name suggests, rentvesting is a home-owning strategy where buyers, usually first-time owners, invest and lease property in one area, while renting and living in another. It’s a win-win, where tenants cover the cost of the mortgage while the buyer gets to keep all the perks of their existing lifestyle and location.

Rentvesting has gained popularity in recent years due to the steady rise in house prices across Australian capital cities, which has made it increasingly difficult for a lot of first-time buyers to purchase a standalone home in the inner and middle ring suburbs where they currently live, work and socialise.

The alternative – buying in the outer suburbs – while more affordable, often means longer commute times and sacrificing lifestyle factors they know and love. Whether that be the close proximity to family and friends, favourite gym classes or the buzz of the city that comes alive with restaurants, wine bars, gigs and theatre shows at night.

But rentvesting provides young buyers with an alternative. One where they’re able to build equity in a strong growth region, while sticking to a budget and keeping the lifestyle they’re accustomed to.

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What are the best suburbs for an investment property?


1. Look at affordability

Start by looking at suburbs with affordability front of mind. Remember, just because you’ve been given the green light on a certain loan amount, doesn’t mean you have to borrow to its full capacity. One of the biggest benefits of a rentvesting strategy is that the outer suburbs and regional areas tend to be more affordable, especially for standalone homes.

2. Consider cash flow

Early on, you’ll want to determine if your proposed rental return will offset the costs associated with owning the investment property and whether it’ll generate a neutral, positive or negative cash flow. In addition to this, it’s important to look at suburbs with low vacancy rates and steady rental yields as these tend to indicate you’re investing in a high demand area.

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3. Find the right location

When it comes to the location of your investment property, you’ll want to make sure you’re considering long-term performance. When comparing suburbs, look at factors such as current median rental price, strong employment rates, proximity to schools and public transport, as well as planned infrastructure projects in the area. Along with location, the type of property you buy can impact your rental income and capital growth.

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Rentvesting pros and cons: ultimately, is rentvesting worth it?


Pros of rentvesting in Australia:

1. You get to keep living the lifestyle you know you enjoy. From shorter commutes to Friday night games at the MCG or the Gabba, and spontaneously popping into the latest neighbourhood wine bar or pub, there’s a lot to love about the bustle (and convenience) of inner suburban living.

2. When the time comes to settle down and buy a home to live in, you’ll have the equity built up to borrow against for your future place.

3. For singles in particular, rentvesting provides you with an opportunity to get your foot in the door of the property market, without having to relocate or settle for a smaller apartment.

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4. Rentvesting suits a range of different career pathways. Whether you’re a young professional who frequently travels for work, a shift worker who wants to remain close to your place of work or you just don’t want to feel tied down to a particular city; rentvesting allows you to start building equity without feeling the sense of permanency that comes when you buy a home to live in.

5. The potential tax benefits that come with rentvesting are an important point to consider. These include certain tax deductions and negative gearing. But on the flip side, if you do decide to put your rental home on the market, a capital gains tax can come into play if you sell at a profit.

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Cons of rentvesting in Australia:

1. When you’re renting, you can be impacted by your landlord deciding to move in, sell or raise your rent. Plus, as a landlord yourself, you need to be prepared for real estate agent fees and managing tenant requests, such as repairs. These costs can easily creep up, so it’s important to make sure that they don’t begin to exceed your rental income.

2. Many buyers reach a point where they want greater creative and design control over their personal spaces. When you rent, refreshing rooms with a new lick of paint and hanging photos and paintings are typically off the cards. It can also be harder if you’ve got a pet you need to accommodate for too.

3. While you can rent out your first home, it will impact your eligibility for the First Homeowner Grant if you choose to rent it out straight away. But there is an alternative. After 6 to 12 months, depending on the requirements of the state you’re located in, you can move and turn it into an investment property.

*Please note, any information given to you by Simonds is general information only and will depend on your own personal and financial circumstances. We recommend that you make your own independent enquiries and seek professional advice from a qualified financial planner, bank or broker.

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