Rent-vesting your way to property investment
Home ownership remains one of the big Australian dreams though it is still elusive for many.
However, more and more people are wisening up.
A growing segment of property buyers is now using rent-vesting – an effective way to own properties while building wealth at the same time.
Why do more people go rent-vesting?
Before we dig deep into the attraction of rent-vesting, let’s find out what it is.
What is rent-vesting?
It’s a strategic approach to build a property investment portfolio where you buy an investment property in a region or suburb where you can afford to buy while you rent in another location where you want to live but can’t afford to buy into yet.
For example, many rent-vestors buy an investment property in the outer suburbs (or even in a different state) where prices are relatively lower compared to those near the CBDs. Then they rent in an area close to where they work or with amenities and lifestyle that suit their liking such as cafes or beaches.
Though there are no official statistics to show how many property investors are using the rent-vesting strategy, industry observers say there are clear signs that rent-vesting is on the rise. This is particularly true among the younger age group – around the early 30s to late 30s – who have secure and well-paying jobs but not enough savings to buy a multi-million dollar house.
Many rent-vestors that we’ve talked to say enjoy the flexibility that goes with the strategy. The security of a regular income (from work) means they can still enjoy the lifestyle they like while the rental income from the investment property is gradually paying up for it.
Another group of rent-vestors include those who prefer to use capital in building a portfolio of properties with lots of upside including ongoing rental income and future growth. Mostly, these people like to make their money work harder rather than tying them up to an expensive home.
Use rent-vesting to build your property portfolio
Given all the benefits from rent-vesting many people say they should have used this strategy earlier. Let’s have a look at some of the benefits of rent-vesting.
Early access to the property market – investing in an area where prices are affordable and within your buying power allows you to gain access to the property market early on. You don’t have to wait for years or decades to save up for a deposit for a $1.5 -$2 million property. This means you can start building your investment property portfolio early on to save up for that multi-million dollar home.
Investment property pays for itself – with your rental property generating a portion or the whole amount of the loan repayment, your investment property can easily pay for itself. And this will allow you to buy additional properties as your equity builds up.
Optimise tax benefits – one of the major benefits of owning an investment property is the tax benefits built into them. For example, maintenance and repair costs can be tax deductible unlike the maintenance and repair costs to an owner-occupied home. Depreciation costs and other expenses related to an investment property can also be tax deductible.
Best of both worlds – rent-vesting gives you the freedom and flexibility to live where you want and invest where you can afford.
Considering the benefits of rent-vesting in building your investment property portfolio, if you are not doing it yet, it may be worth looking into. With property prices continuing to rise in major cities and some regional areas, there are still pockets of opportunities that remain untapped.
If you would like to discuss the Australian property market in more detail, please reach out to the team to organise a time to have a conversation about how Wealthi can help you build a successful property portfolio.
Eva Diaz is a communications specialist with focus on the financial markets. Connect with Eva.