If you’ve heard the term rentvesting mentioned in your social circles or in the news, but you’re still undecided on whether it is the right strategy for you, here are four lessons that the ‘rentvestor generation’ has taught us.
Is the ‘Great Australian Dream’ dead? Some would argue yes, but this is not necessarily the case.
While home ownership has fallen to 66 per cent of Australians, which is the lowest proportion since the ABS started the data series in 1994, a big number of Gen Ys have cottoned on to a new wealth creation strategy in recent years, which is now only becoming popular among the rest of the population.
With increasing property prices, rentvesting is a smart, long-term strategy where you simply rent in an area where you want to live that suits your lifestyle needs, while you purchase an investment property where you can afford.
A majority of millennials value proximity to their needs and wants but they also want to invest in property.
Being comfortable with their lifestyle, they haven’t been prepared to compromise this in order to own their own home.
The rentvestor trend has been mainly identified in the under 30s in Australia’s property market, seeing as it’s harder for them to save or afford a mortgage in the city, but this is starting to change
In July 2019, ABS estimated that 340,000 Australians were said to be rentvestors and it is very likely that we will see this number increase exponentially.
If you’ve heard this term mentioned in your social circles or in the news, but you’re still undecided on whether it is the right strategy for you, here are four lessons that the ‘rentvestor generation’ has taught us.
- You can still live in your dream suburb
It’s hard to say goodbye to your family, friends, lush views or a thriving café culture. Rentvestors have the potential to live in suburbs with a median price point above $1 million with their intended lifestyle, while investing in more affordable suburbs with the freedom of not having a primary residence mortgage. They can then use their investments to purchase their own home in the future or continue investing in more properties.
- It provides greater flexibility and time.
If an investor is tied down with one (potentially large) mortgage, the time between resale in order to finance further portfolio growth is prolonged. Renting allows for flexibility between residences with minimal time pressure between purchases. Once a property is purchased, for the buyer to see a decent amount of capital growth, it’s recommended that you do not sell for at least 5 years. This can have a massive impact on your portfolio and assets, and therefore lifestyle decisions.
- You have increased borrowing power
If investors lock themselves into a massive mortgage, e.g. a primary place of residence in their dream suburb, they’re often left with little borrowing power to build wealth for themselves and your family for the future.
There are some significant tax benefits to take advantage of. You can claim interest payments and tax deductions for the outgoings on your investment property/s. Whereas, if you make it your home, you are not entitled to claim any of these. These expenses include water and council rates, home insurance, land taxes, tenant advertising, interest on mortgage repayments, depreciation deductions for the wear and tear that occurs to the structure of the property and many more.
It’s important to consider the above in relation to your own circumstances and long-term goals. In property investment, it’s so important to ‘know your why’ as this will inform your strategy and the tactics that you use, so rentvesting may or may not be suitable for you.