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Should you still consider rentvesting despite the soaring rents?

John Tran
May 19, 2023
Should you still consider rentvesting despite the soaring rents

Rentvesting has become a popular choice for many Australians trying to get into the property market. The concept is simple: invest in real estate while renting somewhere else — hence “rent” + “investing” = rentvesting. But with rents on the rise, is it still a practical option? 

In this blog, we'll explore the pros and cons of rentvesting to help you decide if it's the right move for you. From analysing rental fees to weighing up potential capital gains, let's dive in and see if rentvesting is still a viable choice. 

What is Rentvesting?

Rentvesting is an investment strategy that involves the purchase of a property for rental income, while continuing to live in rented accommodation. This allows investors to benefit from both the capital growth potential of investing in a property and still remain flexible with their living arrangements by avoiding committing to long-term mortgages. 

Moreover, rentvesting can also provide greater diversification in an investor's portfolio since the rental income can be used to help fund other investments and it also has tax benefits, as rental income is taxed at a lower rate than wages or salary income. 

The Pros and Cons of Rentvesting

Rentvesting can be an incredible choice for Australians looking to enter the property market without worrying about their budget. But before you start your rentvesting journey, you should take a look at first on the pros and cons.

Pros of Rentvesting

Rentvesting offers freedom for those who want to move in the future, which is one of its main advantages. Renters don't have to worry about selling their home or dealing with any related costs because it's simple for them to find a new place when their rental arrangement expires. Meanwhile, investors can benefit from the appreciation of their assets, which has the potential to increase in value over time.

Since renters normally just have to pay for the rent and utilities for one home, they don't have to worry about the financial strain of paying a huge mortgage. That's why rentvesting can also be a terrific method to enter the property market without having to take out a large mortgage. Tax benefits on capital gains and rental income are available to investors, substantially lowering their costs.

Additionally, rentvesting offers investors chances for diversification that may not be present in more conventional real estate investments. Rentvestors can spread their assets across a portfolio of properties in many places rather than investing in a single property in a single region, which can assist to lower risk and enhance possible returns.

Cons of Rentvesting

One of the biggest cons to rentvesting is that you’ll have two mortgages to manage. This can make it difficult to keep track of two different finances and payment schedules, which may add additional stress. Furthermore, in some cases, you may find yourself paying more on mortgage payments than you would if you just bought a single property outright. 

Additionally, depending on the rental market of your chosen area, you may find it difficult to recoup the costs associated with rentvesting in the long run - even if property prices appreciate over time. Finally, rentvesting can be complicated and requires a lot of research and advice from a financial advisor or real estate professional to ensure that you are making the right decisions. 

  1. Managing two mortgages can be difficult and stressful.
  2. You may pay more on mortgage payments than you would for a single property.
  3. It may be difficult to recoup the costs associated with rentvesting in the long run.
  4. Rentvesting is complicated and requires research and advice from financial advisors or real estate professionals.

Should you still consider rentvesting despite the soaring rents?

“Rentvesting gives investors entry into an area without needing to commit to buying a property outright,” says Advisable Property Buyer Kate Hill. “This allows investors to get their foot in the door and start building an investment portfolio, while still having flexibility with where they live.”

Investors can also benefit from tax deductions associated with rental properties such as interest costs and depreciation of assets.

With the current rental market conditions throughout Australia, Kate Hill also believes rentvesting can be a solid investment strategy for anyone looking to access the property market in an affordable way.

“Anyone who may be a bit younger, or who lives in an expensive city like Sydney or Melbourne, should still be considering rentvesting as a strategy given it generally remains cheaper to rent a house in our biggest cities than it is to buy one,” she said. (source: yourmortgage)

Those looking to explore rentvesting should seek professional advice from an experienced financial advisor or property specialist. They can also consult with their accountant on the best strategies for managing tax deductions associated with rental properties.

Last Words

In conclusion, rentvesting can be a great way for investors to get into the property market. However, it is important to research and understand the current market conditions before making any decisions about where and when to invest in a rental property. Working with a Melbourne Mortgage Broker can provide helpful advice and guidance as you navigate through this process. With the right advice, rentvesting can be an effective way to build wealth and gain financial independence. 

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