Rentvesting versus buying your owner-occupier property.
Rentvesting has become a popular concept. As the name suggests, it’s a mash-up between
renting and investing and it can be a great way to have your cake and eat it too.
When it comes to buying property, a lot of us can’t afford to buy a house in our preferred
neighbourhood. So rather than move to a suburb miles away, we can buy a property within
our budget and rent it out, and keep renting in our preferred neighbourhood.
So could this be a pathway to property ownership for you? Let’s look at the pros and cons.
Loving your lifestyle can be a contributor to your decision.
When money isn’t an issue, most of us choose a place to live based on proximity to work,
friends, family and the amenities that match our current stage of life.
If you’re young and single you might want to be close to nightlife, if you’re a keen surfer
you’ll want to be close to the beach and if you’ve got a swag of kids your focus will be on
your preferred school zone.
Avoiding a long commute that eats into family or leisure time is top of the list for most of us,
so is having shops and cafes within easy reach.
But of course, the better the amenity in any given suburb, the more eye-watering property
prices are likely to be. On the flip side, when it comes to rental properties, yields drop as
values rise, so if you can’t afford to buy in the neighbourhood that ticks your lifestyle boxes,
then maybe you can afford to rent and buy elsewhere delivering a win-win on the lifestyle
Securing a better investment property through rentvesting.
Rentvesting can open the door to a much longer list of potential suburbs to buy into because
you no longer have to tick your own lifestyle wish list, and this means you’ve got a better
chance of finding an investment-grade property.
There’s a popular notion that owner occupiers buy with their heart while investors buy with
their head. If you subscribe to that notion, then going down the rentvesting route could save
you from yourself.
When you’re buying a property with the intention of renting it out you’re less likely to be
swayed by the rose garden behind the picket fence. Instead you’ll be focussed on the
serious stuff: rental yield and demand, potential for capital growth, holding costs and tax
And if you’ve done a good job on your due diligence, your property investment has a much
better chance of being a profitable exercise
Reduce your tax bill.
There are no tax breaks for owner occupiers, even if you’ve got a whopping great mortgage
and the monthly interest repayments are eating into your entertainment budget.
But it’s a different story if you’re an investor and your property is negatively geared. Negative
gearing is when the costs of holding a property are higher than the rent it generates and you
have to find money to meet that shortfall.
At tax time, with help from your accountant, you can claim those costs against your income,
effectively minimising your tax.
But on the downside….
You might miss out on grants from the government.
There’s a few different grants, schemes and discounts on offer that are designed to help first
home buyers get a foot on the property ladder, but unfortunately they typically require you to
live in the property you buy for at least six continuous months. Have a look at this list of grants by state.
And when you live in a rental property, you can’t install a dog door, trade up the dishwasher
or choose a new paint colour scheme without permission from your landlord. You’ll also have
to put up with rent hikes and if the property goes on the market, you might have to move out.
Basically it’s a bit harder to put down roots and make your house your own when it’s not your
Still not sure if rentvesting is a good option? We have some great calculators here so you can work out what you need to borrow and what your costs will be. Have a chat with your accountant and your broker. If you don’t have a good broker, get in touch with us at firstname.lastname@example.org.
We can walk you through the numbers and help you figure out what’s best for your scenario.