To understand rentvesting, the first piece of the puzzle is asking, what’s an investment property? Basically, it's a property that you own but don’t live in and use as an investment to earn rental income or for capital growth.
Now for the big question: what’s rentvesting? In most rentvesting examples it’s when you buy an investment property in an area you can afford and rent somewhere else. By renting out your property and renting another to live in, you could live in your dream home without having to buy it.
But wait, isn’t renting dead money? Some people might think so, but with rentvesting you’re still earning a rental income on your investment property which can help cover your mortgage repayments and get you on the property ladder. Plus, you could make a profit if you sell for more than you bought for. Cha-ching!
What are the pros and cons of rentvesting?
There’s a few pros and cons to consider if you’re going to rentvest:
- A cheaper property means a smaller deposit, which is easier to save for
- You have the flexibility of moving or travelling, while still owning a home
- There may be rentvesting tax benefits that could allow you to claim deductions on strata fees, council rates, water charges, cleaning, home and contents insurance, maintenance, depreciation and home loan interest payments
- You could also claim tax deductions if your mortgage repayments are higher than your rental income, aka negative gearing.
- You can’t make any renovations to a rental property
- You could be asked to move out at any time
- You’ll have to pay capital gains tax when you sell the investment property
- The First Home Owner Grant only applies to Owner-Occupied properties
- Most lenders will charge a higher interest rate for Investment vs. Owner-Occupied home loans.
Pro tip: There are online rentvesting calculators available and our home loan calculator allows you to easily compare the interest rates on a home to live in, versus an investment property.
Is rentvesting for me?
Everyone’s finances are different, but the main things to think about are your incomings and your outgoings. Incomings include your salary and the rental income on your future investment property. Outgoings are your rental payments, strata fees, property management fees, council rates, landlord insurance, potential utility fees and living expenses. Plus, you’ll also be responsible for any maintenance costs. If your incomings are more than your outgoings, then rentvesting could be a good option for you to explore.