Financial Advice Blog

What is rentvesting and is it right for you?

Here we explore the pros and cons of rentvesting so you can work out if it's the right strategy for you.

Rentvesting has gained in popularity across Australia for good reason. It is a viable solution for people who want to own property but need to choose a neighbourhood that fits their budget. As property prices increase across Australia, those keen on entering the property market need to get creative.

People who want to break into the property market turn to rentvesting because it offers the best of both worlds — they can own property as well as live wherever they want. They can rent and stay in the suburb they desire that otherwise would be out of reach for ownership and buy an investment property in a less expensive suburb they can afford.

Benefits of rentvesting

As a housing trend, rentvesting is most popular among millennials since affordability is a huge stumbling block for many prospective property owners of this generation. Before you dive in, take time to review the pros and cons of rentvesting.

Pros of rentvesting

Cons of rentvesting

You can live where you want and buy where you can afford to invest in the real estate market. You may face rent increases or be asked to vacate your rental property by the landlord.
You can get on the property ladder sooner instead of delaying your home-buying plans for years while saving for a deposit. As an investment property owner, you are responsible for management and maintenance costs for the property.
You can use income from your investment property to pay down the mortgage or as a secondary source of income. Some states and territories do not allow rentvestors to access the First Home Owners Grant since they are not owner-occupiers. Review specific rules for the area you plan to buy an investment property.
You can potentially sell your investment property for a profit if it increases in value. On the flip side, you may face selling your investment property at a loss.

Rentvesting requires financial preparedness. Working with a financial planner is a great first step toward success as an investment property owner and can ensure you reap all the benefits of rentvesting.

Rentvesting tax benefits

Homeowner-occupiers do not enjoy the same tax breaks as property investors. One of the rentvesting tax benefits is claiming depreciation and holding costs each year. Conveyancing fees, lending fees and stamp duty can all be claimed depending on your situation.

Arguably one of the most advantageous tax benefits of rentvesting is leveraging any losses when annual expenses exceed the gross income from rent. Those losses can be deducted from rentvestors’ yearly salaries to reduce their taxable income level. Sometimes rentvestors deliberately set up a process known as negative gearing, which forces their investment properties to make losses. The rationale for doing so is that some incomes are taxed at top marginal rates and taking a loss helps lower their tax rate.

Before exploring any tax advantages of buying a rental property, consulting a financial advisor can help with all applicable deductions.

Finding the best rentvesting strategy

While rentvesting is popular, it may not be a good fit for your financial and personal goals. Talking with financial experts who are knowledgeable in all aspects of life planning can help decipher whether this investment strategy is right for you. If you determine it is a path you wish to pursue, your financial planner can help develop a solid rentvesting strategy. Book an appointment with Financial Spectrum to discuss your options today.


What is rentvesting?

Rentvesting is popular among people who want to live in a specific neighbourhood but cannot afford to purchase real estate there. As an alternative, they rent in their preferred location while buying property in an area they can afford. Rentvesters can maintain their current lifestyles while entering the real estate property market and do not need to delay property ownership by years while they save for a depost.

Why do people rentvest?

The number one reason people rentvest is because they cannot afford to purchase real estate in their preferred location. They may want to live and work in a specific area but lack the financing needed to buy there. Rentvesting is a smart alternative. People can live where they choose and invest in property in a more affordable area.

Is it better to rentvest or buy a home?

This really comes down to your individual needs, wants, savings and goals. To find out which is the better option for you, get in touch with a financial planner who can compare your options and work out what’s best for your unique situation.

How do I know if rentvesting is the best investment strategy for me?

Rentvesting can offer more flexibility and could help you get on the property ladder sooner.  But while rentvesting is a popular property investment strategy, this does not mean it is the best strategy for everyone. We always recommend speaking with a financial advisor before you take the rentvesting leap. They will be able to review your personal circumstances and make recommendations that fit your financial and personal goals.

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