Home prices are climbing, particularly in capital cities where they were up 8.8% in the 12 months to May, according to CoreLogic.
At the same time, around 90% of employers have implemented mandatory in-office days, according to recruitment agency Robert Half. This is pushing people back into the inner city.
What do these two pieces of information have to do with each other? The answer is the concept of rentvesting.
Rentvesting allows you to purchase a home that you can afford, but live in a rented property that suits your lifestyle needs.
For first-time investors, rentvesting may offer a solution that solves high property prices being a barrier to entry into the property market, while also allowing you to live close to work.
Benefits of rentvesting
Lower entry point: Investment properties in more affordable locations can be cheaper than inner-city homes. This allows you to enter the world of investment sooner and start building equity.
Lifestyle flexibility: You can prioritise living in your desired location without the financial strain of owning a property in that area. This is particularly helpful for young professionals who may not be ready to settle down.
Potential for financial growth: Over time, the property market can offer capital growth on your investment property, further boosting your wealth. Plus, the rent collected from your investment property can help offset your mortgage costs.
Tax benefits: Investment properties can offer various tax advantages, such as deductions for mortgage interest, property management fees and maintenance costs.
Disadvantages of rentvesting
The extra responsibility: You’ll be a landlord, which comes with additional responsibilities and potential costs for property maintenance.
Tax implications: When you decide to sell your investment property, you might be liable for capital gains tax (CGT).
Rental expenses: As a tenant yourself, you will be liable for rental costs, which are also increasing, up 8.5% nationally according to CoreLogic.
Tenant Risks: Renting out an investment property comes with a few risks, like the potential for the home to be vacant or dealing with problematic tenants.
Rentvesting for first-time investors
Rentvesting requires careful research and planning. Other factors to consider include potential rental yields and vacancy rates. However, for first-time investors looking to take advantage of the potential for capital growth while maintaining their desired lifestyle, rentvesting can be a strategic way to get your foot on the property ladder.