Is rentvesting right for you?

Rentvesting is gaining in popularity, especially for those new to the market who don’t yet have their first investment property!

  • August 31st, 2022
Rentvesting is gaining in popularity, especially for those new to the market who don’t yet have their first investment property…but who have big plans when it comes to establishing a portfolio! So, off the back of the recent article interviewing brand new rentvestor and member of The Property Mentors – Shaun Polidano – we thought we’d take a closer look at what it takes to become a rentvestor, so you can get onto the property ladder sooner rather than later!Find out how here… WHAT IS RENTVESTING? In essence, rentvesting involves investing in a property first (in an area you can afford or where the investment fundamentals are strong) while continuing to rent in the area you want (or can afford) to live in for lifestyle purposes. Luke Harris explains:WHAT ARE THE BENEFITS OF RENTVESTING? The biggest benefit of rentvesting is that it allows you to purchase property without sacrificing your lifestyle, but there are plenty of other positives as well. Here’s three: NUMBER ONE | Location, location, location You can buy anywhere that’s a solid investment – and that includes interstate. In addition, if you purchase a property in a more affordable area that means less capital up front, so you can get into the investment market sooner. NUMBER TWO | Growing your wealth Because all your money won’t be tied up in a huge mortgage on your primary residence, you have more capital to invest. And you can leverage your first rentvestment to buy more properties to expand your portfolio further, faster. NUMBER THREE | Deductions, deductions, deductions Rentvesting allows you to take advantage of the tax concessions available to investors, such as claiming tax deductions against your investment property income – like the interest paid on your loan, and rental costs like insurance, advertising, strata fees and depreciation costs.IS RENTVESTING RIGHT FOR YOU? Rentvestors are typically younger, more than likely single (living alone or still “at home”), with a relatively high income. However, more importantly, they just don’t feel the same way as previous generations about owning their own home. They regard property as an investment and a way to accumulate wealth, rather than a place to settle down and raise a family. So rentvesting is a particularly good tool to consider if you’re at this stage of life, no matter what your age. That is, rather than buying your first home, you might benefit from buying your first investment property instead! FIVE QUESTIONS YOU SHOULD ASK TO DECIDE IF RENTVESTING IS RIGHT FOR YOU QUESTION ONE | Do you have a plan? Whether it’s rentvesting, or any other strategy, you need to ask the question “Does it fit my plan?” And if you don’t have a plan, then you need to get one! Because we all know that failing to plan is the same thing as planning to fail. And many investors fail to plan exactly how and when they are going to achieve their financial goals, instead they make decisions based around what sounds good right now. QUESTION TWO | Do you have a deposit? The size of your deposit directly impacts where you can afford to buy. So, ask yourself "Can I afford to buy in the area I want to live in?" If the answer is no, then rentvesting might be a great option to get you into the property market sooner than you thought possible, while you live your dream lifestyle in your preferred suburb. QUESTION THREE | Do you know your borrowing capacity? Next, even if you have saved a big enough deposit, does your income allow you to borrow the remaining funds to purchase in your preferred suburb? Because your own home doesn’t generally provide you with any income from the property, you may actually be able to borrow more for an income generating rental property. Either way, make sure you’re working with a great mortgage broker to work out your best options. QUESTION FOUR | Do you know where you want to be ten years from now? Let’s face it, when we’re younger, we probably don’t know exactly where the future will take us or where we will want to call home. Because rental leases are shorter and easier to move away from, rentvesting gives you the flexibility to decide where you will live in the future. Not being tied to a mortgage gives you greater life freedom so you can move interstate, or overseas, or enjoy a sea or tree change during a global pandemic! QUESTION FIVE | How much tax do you want to pay? They say in life nothing is certain but death and taxes. However, the taxation treatments of a principal place of residence (PPR) versus an investment property are very different! On the one hand, the loan on your PPR is considered a non-tax deductible debt. It can be thought of as neutral debt because – while it's not making you money – it is helping you build value by saving you rent and accruing capital value. But in the meantime you won’t be able to take advantage of any of the depreciation or tax benefits that can be applied to an investment property. On the other hand, investment loans are generally considered good debt because they use money to make money. if you’re on a good income and your investment property is negatively geared (that is, your rental return is less than your interest repayments and other property-related expenses), you may be able to reduce the amount of tax you need to pay each year. Ultimately there are two different decisions you need to consider when determining if rentvesting is the right fit for you.Financial decisions based around your retirement goals and your property plan (if you have one), taking into account things like the size of your savings, your income level and your borrowing capacity.Emotional decisions driven by lifestyle considerations such as how much you want to travel, if you want to establish a family sooner or later (or never), where you want to live, the type of access you’d like to schools, hospitals, work and transport…and if you can handle the uncertainty of living in rental accommodation vs the convenience of living in your own home. Finding this a bit overwhelming? You’re not alone. The Property Mentors and our team of industry experts are here to help you navigate the ins and outs of rentvesting and property investing. We can help you identify your borrowing capacity and ensure you are financially ready to build a successful property portfolio. Schedule a free discovery call with one of our property mentors and start building your portfolio today.LIKE TO LEARN MORE? Check out our blog article on the rentvesting trend here. Or listen to our Investor Intelligence podcasts on the ins and outs of rentvesting here.

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