What is Rentvesting?
This is a term given to the new 21st century breed of young first home-buyers who are taking advantage of Australia’s property market to invest and build their portfolios.
Rentvesting is the term used when a home buyer chooses to purchase their first home as an investment, instead of living in it.
It is currently one of the fastest growing trends among generation Y buyers, with statistics from West Australian broker group Mortgage Choice suggesting that one in four first home-buyers in WA are purchasing their first homes as investment properties. The trend is not limited to WA, with young buyers making similar investment strategies all around the nation!
Benefits of Rentvesting
It is not hard to see why – This reinvesting strategy allows investors to live in their dream location whilst at the same time getting their foot in door of the property market, and earning money on their investments. Some industry experts have even been quoted as saying ‘there’s never been a better time do it with rents and home prices so down’.
All the tax benefits of owning an investment property are available to these savvy young investors, and their rental income is often more than sufficient enough to cover their mortgage. Living with parents to reduce rent can even save these investors more money!
The Rentvesting strategy provides first-time buyers with many benefits, both financial and non-financial including the following:
- Tax benefits: Buyers receive all the tax benefits of a property investor, including depreciation and negative gearing
- Rental Income: The rent received from the investment goes towards the loan repayments and can, at times, be enough to cover the mortgage
- Enter the property market sooner: you have the opportunity to get your foot in the door of the property market sooner
- Opportunity to reduce mortgage balance: Sticking to your Rentvesting plan for a couple of years could help to pay down the amount of money you owe on your investment mortgage, which helps to build your equity faster
- Flexibility: By renting, the investor is able to live where they want and in their ideal location where they can afford the rent but not necessarily afford to purchase a home in that area, i.e. Close to the CBD.
- Choose where to invest: the suburb you want to live in won’t necessarily be the same area where you buy your investment property. You can choose to buy a property in an area with strong rental demand and good rental yields while you rent in the area where you prefer to live.
- Fast-track plans to upgrade: taking advantage of rental income, plus tax benefits, plus the option of paying down your mortgage more quickly could all contribute towards fast-tracking your plans to upgrade to a nicer home in the area you want to live in
- Build wealth: Rentvesting is ideal for those who want to start building wealth. The tenants pay rent that will help to cover your mortgage costs and you have the opportunity to take advantage of any potential capital growth over time
- Opens up new markets: Rentvesting opens up interstate markets or locations that might not be where you want to live, but might be great for investment purposes
- Easier to relocate: Renting also provides the young investor with the flexibility of being able to relocate more easily, or take advantage of extended travel
If you’re beginning to think that rentvesting may be for you – here are some tips that are relevant to today’s property market.
Top Tips for Potential Investors in the Current Market –
1. Consider older homes on large blocks close to the CBD. Houses that don’t have the best presentation are often overlooked real estate market however these types of houses can often have the best long term capital growth.
2. Look for suburbs that are currently oversupplied with properties but are growing or expected to grow.
3. Obtain pre-financing – this will allow you to act with certainty and take advantage of desperate sellers who will be more than likely to drop the price of their property for the promise of a rapid sale.
4. Emphasis should be placed on negotiation on price, not conditions of sale. The conditions of the current market have created the perfect opportunity to buy a home below the asking price! Buyers are a lot better off negotiating on price rather than adding conditions to sale – like the request for items to be repaired. This will annoy sellers and they will be less likely to lower their price.
We’d love to help
If this has got you thinking about the potential benefits that rentvesting could bring you, then contact us at Nieuvision today. We believe that your investment and financial dreams should be a reality. With the help of our friendly and experienced staff we will be able to provide you with the information and guidance required to reach your personal investment and financial goals!