Rentvesting is a whole new option probably not known to our parents' generation. Today, many tenants are also landlords. They simply choose to buy within their budget and live where they want to live. It's very simple.
Rentvesting does, however, revolutionise people's buying, living and renting strategies. Buying tends to be more investor-driven in terms of the property being purchased needing to be an A-Grade investment property that is for long-term hold; living tends to be flexible and meeting here-and-now needs; and renting needs to be the "right" property because it is for the long-term, not a short-term stop-gap measure.
The Sydney property market is expensive, and some people struggle to afford the right type of home where they live. However, rents are usually lower than the combined annual costs of holding property, so it makes better financial sense for people to rent where they want to live, tax-deducting all of the costs of holding a property while it increases in capital growth.
The unfortunate reality is that the longer you take to buy a property, the more the market goes up, and the more difficult it may be to ever get into the market. A better idea is to buy something that you can afford now, and rent.
Are there any benefits rentvesting?
The main benefit of rentvesting is that people can enter the property market much earlier. Let's say someone buys a $400,000 property today in Sydney at age 25. In 10 years, that property may be worth around $700,000 - $800,000 - but all of the mortgage interest, water, council and strata fees would have been tax deductible. In 10 years, that same person is potentially in a better financial situation that what they were in at age 25: partly because of the increased capital growth of their property, and partly because they would have had more years in the workforce and be better established. They are now in a position to:
- Buy another investment property; or
- Buy a home to live in
Put simply, the sooner a person can get into the property market, the sooner their property can generate capital growth, and the sooner they can start to build real wealth. There are very few asset classes that offer the same risk/benefit profile as property. Well-purchased property makes excellent capital gains at low risk.
Research is the key
The key to a successful rentvesting strategy is to buy well. That's not necessarily a property that you love. It is an A-Grade Investment Property. Careful and thorough research and analysis are needed. If you are a tenantwho is seeking to buy an investment property, get in touch today - I'd love to help you!