We understand the difficulties of obtaining your first property – particularly if families are not in a place to provide financial assistance.
Given the unprecedented increase in property prices in most major cities over the last decades and the fact that wages have not kept pace, it is now more difficult than ever to get started in real estate.
The increasingly common “rentvesting” is one alternative option.
“Rentvesting” allows those that are new to property investment to eventually build a portfolio of investment properties. It involves renting a home to stay in the most suitable spot, typically closer to the CBD, while beginning an investment strategy in a more affordable city.
Here are some of the advantages of “rentvesting”:
Live Where You Want
Renting accommodation near the centre or the coastline can be a lot more economical than purchasing in those places. This is because capital appreciation in desirable postcodes substantially outshines rental growth, which is driven by inflationary trends.
Lifestyle possibilities in these areas are especially appealing to young people, and there may also be more job opportunities in these areas. An attractive flat in the city could cost $600 a week to rent, but $900 a week if you had to pay the mortgage on the same house.
As a tenant, you are only dedicated to a property for a period of 12 months. This will give you versatility and create opportunities such as travel, relocation to a new position or a committed relationship.
When you rentvest it gives you more options to make lifestyle choices and change your residence.
Tax Deductible Finance
Unlike homeowners who end up with significant non-tax-deductible liabilities, you will claim interest on all of your rent payments linked with your rental property per fiscal year.
This will improve your financial flow and help will your individual income tax obligation. You may also claim different costs related to the maintenance of your property and depreciation, making property ownership even more reasonable.
You Could Borrow More Cash
Lenders will make it easier for you to loan more, as you really do have your salary to show the service life of the loan, but also the rental income provided by the investment property.
In calculating your ability to repay, creditors will take into consideration a portion of the estimated annual rental income. This means that you can actually buy a larger property than when you purchase the owner-occupied house.
Let Your Renters Pay Off the Home
If you’re easily renting where you’d like to live, your tenants are paying off your debt.
Ideally, you want to keep a favourable or supportive property where the rental income meets the cost of servicing the mortgage and other expenses of the property.
Luckily, this cash flow technique is relatively easy to achieve in our ongoing low-interest rate setting, overtime your rent will rise and property will be favourably geared, which means the resource is making you money!
Your House Doesn’t Need to Be Your Greatest Asset
Instead of the pressure of paying back non-tax-deductible income to ‘house of your dreams,’ you will have much more potential to use the increasing equity of your rental property to build a well-balanced, diverse portfolio.
This will help to foster your future financial freedom.