Could Rentvesting be the Solution to the Homebuying Gap?

You’re not alone if you’re a young person struggling to enter the property market. A recent report from ABC News shows that housing costs are one of the largest concerns for young people entering this election cycle ^[1]. Young Australians feel their hard work and efforts arent helping them enter the property market.

Despite this, both parties Policies have left young people wanting more and feeling underrepresented. Labor has announced it will fund incentives to build more homes for first home buyers, while the Coalition will allow first home buyers to deduct their mortgage payments from taxes. ^[2]

While steps are being taken by both parties to make homeownership more accessible, young people still feel the affordability aspect of homeownership is still a major hurdle. Rentvesting could be a solution.

What is Rentvesting?

Rentvesting is the practice of buying in an area you can afford, while renting in an area that appeals to you. The property you purchase is an investment property. You rent to tenants and generate a regular rental income. Rentvesting means buying in an area that suits your budget, while living somewhere that you love.

Comparing Situations

Emma wants to live in Summervale but can’t afford the loan repayments and ongoing costs of $1162 per week on the property price of $800,000 for her dream home. Instead, she chooses to buy an investment property in Autumn Falls for $650,000. Emma’s repayments are $853 a week, and she will pay approximately $200 a week in maintenance costs, which totals $1053 a week. Emma rents this property out for $600 a week. She then rents a property with a friend in Summervale, paying $375 a week for her 50% share, with overall costs being $334 per week less than buying her own home. As a result, Emma can live where she wants and own an investment property!

*Values in this circumstance were favourable to Emma’s financial situation. This is one example and does not guarantee that Rentvesting will be the right choice in every circumstance.

Benefits of Rentvesting

There are several intrinsic benefits to Rentvesting.

• By Rentvesting, your first property is an investment property, meaning you get a head start on the property market.
• You can earn a regular rental income from tenants who live in your property. This is passive income that can go towards your rental payments.
• You can claim potential tax benefits that come from owning an investment property. As a first home buyer, these would otherwise be unavailable to you.
• You get to live in an area that suits you. Typically buying a property restricts the areas you can afford. However, by rentvesting, you can live in an area that suits you lifestyle.

Things to Consider

Rentvesting seems like a great option, but needs to be an informed decision, and some risks need to be accounted for.

• Owner-occupied grants and incentives, such as the first homeowners’ grant, family home guarantee and home guarantee scheme, don’t apply to investment properties. You’ll likely be paying the full amount of the property without grants or incentives, and will have to make a full deposit of 20% of the property’s price.
• Generating a regular rental income is reliant on your property being tenanted. If the property goes a while without having anyone in it, you’ll find yourself paying the costs of the property and your rental costs. Make sure you actively take steps to find and keep tenants.
• Take into consideration that, as a landlord, you’re responsible for the maintenance and repair of the property, within reason.
• Are you happy renting? Rentvesting is a long-term property solution. Unless you’re planning to buy a home to live in later down the line, you’ll be renting for a long time. Tenants who rent have significantly less security and control over the property they live in.

Rentvesting is an increasingly popular and potentially lucrative investment strategy, but should be well thought out, and done with the support of experts. Your local MoneyQuest Finance Specialists are here to help you pave the way forward to owning property and making your name in the investment game. Reach out to us today.

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