Save to buy your home, move to where you can afford it, and work hard to pay it off… is what has been instilled in most of us as we plan the purchase of our first home. However, in cities such as Sydney where average house prices are now hovering above the $1m mark, this is less and less achievable.
Is there another way to get on the property ladder that may actually be more feasible and accommodating to your lifestyle? The strategy of investing before purchasing your own home may seem like a backward approach, but it can be the smartest way to gain property ownership in the current economic climate.
Rentvesting can give you the best of both worlds. You can buy a property within budget, in a high-growth area with low vacancy rates and good amenities. Rent it out to cover some or all of your ownership costs, while continuing to rent the home where you live, enjoying an optimal lifestyle. If your investment property is earning you a profit, you could even use that income towards your home rental costs. And if it is negatively geared, then your annual tax benefit may more than make up the difference in your cash flow.
As land and home prices in inner-city areas have increased, this strategy is increasingly popular, especially among younger buyers. According to domain.com.au, in 2016 approximately a third of investors were also renters. In cities like Sydney where mean house prices are now hovering around the $1.2m mark, is this still achievable and desirable?
Is there another way to get on the property ladder that may actually be more feasible and accommodating to your lifestyle? The strategy of investing before purchasing your own home may seem like a backward approach, but it can be the smartest way to gain property ownership in the current economic climate.
Rentvesting is meant to enhance your lifestyle, not make it harder for you to sleep at night.
Do you have a fundamental understanding of ‘good debt’ vs ‘bad debt’?
Are you comfortable with the power of leveraging ‘other people’s money (like a bank) to grow your portfolio?
Are you ready, willing, and able to be financially healthy so that as you grow your portfolio you remain in control and are not compelled to sell in a squeeze or a hurry?
It is also important to understand your risk profile and select property that reflects your vision and goals, your budget, aspirations, and financial capability.
It is also important to understand your risk profile and select property that reflects your vision and goals, your budget, aspirations, and financial capability.
The rentvesting concept may be counterintuitive but to those in the know who are well-resourced, educated, and supported it is a perfectly acceptable property investment strategy.
Flexibility to move around, upsize, or downsize as required. Freedom to choose a lifestyle based on taste rather than budget.
Optimal location and amenities; ease of access to work, critical services, social life, and friends and family
As a tenant, you’re unlikely responsible for maintenance costs or wear and tear
You may be entitled to tax deductions for your investment property expenses,
such as mortgage interest, insurance, advertising, and depreciation.
The Australian Tax Office explains.
There are no stand-alone tax benefits for your principal place of residence
Instead of waiting to enter the market while saving up for the deposit and building your career and income
in order to meet the price point, you may have the opportunity to enter the market earlier at a price you can afford.
As an investor, you may find that the area you chose to invest in beats the capital growth returns of the area you chose to live in.
Additionally, optimally selected properties can outperform average savings at current interest rates.
You are at effect to the needs and wants of the landlord and may have to move (lease terms prevail).
Make your home available for inspections, or endure rental increases from time to time
As a landlord, you are responsible for all of the running costs of your investment property.
If your rental income is less than your costs, you’ll need to cover the gap in addition to your rental costs.
If you sell your investment property, you are subject to capital gains tax.
You don’t have to pay CGT on most owner-occupied properties. The ATO explains how this works.
Rentvestors generally aren’t able to access the First Home Owners Grant.
Rules vary depending on the state or territory. Find out more here.
As you don’t own the property it may be harder to alter the dwelling to your taste or requirements.
Book a free, no-obligation call with me and take the first step toward discovering a life of personal freedom and choice.
Or email me at hello@portfoliobydesign.com.au.
And don’t forget to connect with me on socials.
I’d love to hear from you!
