For first-time investors who feel like their dream homes and investment goals are out of reach, rent-vesting can be a viable option. Rent-vesting allows you to rent the kind of home you want, while borrowing money to invest in a lower-cost property, then using the rent money from that property to help pay off the mortgage. Breaking into the property market while living in an ideal home may not seem so impossible with rent-vesting.
How does rent-vesting work?
As both renter and landlord, you get to purchase a house or unit in a location in line with your budget while renting in an area you can’t afford to buy. The aim is to buy in a suburb with growth potential so that your mortgage can cover your rent. Ideally, you want a rental yield of 5% or more to ensure your mortgage repayments are met without having to dip into other sources. This strategy is meant to build equity, which you can use to purchase further investments.
What are the advantages of rent-vesting?
- You get to choose where you live and in a comparatively nicer home. People often tend to settle on what they can only afford, but renting is more flexible. This means you’ll have more opportunity to upgrade or downgrade your home or move around if needed.
- You get to choose where to invest. Where you want to live and where you want to invest are not necessarily the same. Rentvesting allows you to be more strategic when it comes to both.
- You can build wealth. Once you have enough equity from rent-vesting, you can start building your investment portfolio, which will generate profit and wealth for your future.
- You get plenty of tax deductions. An investment property’s interest repayments are fully tax deductible and you can claim depreciation on the building structure as well as plant and equipment. This means greater savings when it’s tax time.
What are the disadvantages of rent-vesting?
- Your options are limited. Premium properties often fall into the hands of owners than renters. This means your dream home may not be up for rent.
- You don’t have control over your home. As a tenant, you can’t make the changes and improvements you want to your home.
Are you suited for rent-vesting?
So, should you rent or buy? The right approach will depend on your own circumstances. You will want to assess if you are financially ready for either choice. You must also be ready for extra costs when it comes to being a landlord, such as insurance, repairs and maintenance, land tax and property management fees. Research and speak to experts, like a financial adviser or mortgage broker, so you can be sure you’re prepared for whatever investment decision you make.
Are you ready to invest in property? Don’t forget to download our FREE investment decision checklist https://www.rentalresults.com.au/landlords-guide/