‘Rentvesting’ is an emerging property investment trend where buyers – typically young Gen Y – purchase their first property for investment purposes rather than living in it while they rent somewhere.
Investing before purchasing your own home may seem like a backwards approach, as there can be a mentality that your first property purchase should be your own home, but here are three reasons why ‘rentvesting’ can be the smartest way to go.
1. Keep your current lifestyle while building equity
For many Gen Ys, giving up their current lifestyle is not an option. And that lifestyle is typically living in the middle of the city or walking distance to the beach where the cost of rent is much more affordable than the cost of a mortgage.
With ‘rentvesting’, you needn’t compromise. You can rent in your dream location and purchase an investment property in an affordable, well researched area with projected future growth. Keep enjoying your current lifestyle while building up equity and wealth which will go towards purchasing your dream home in the future, or alternatively another investment property.
Renting can also come with greater freedom to choose how you live, where you live and for how long. For instance, you may wish to move around and experience different cities and lifestyles, an opportunity to relocate for your career may present itself, or you may decide to travel for six months. Not having a permanent address and an owner occupied mortgage may better suit your current lifestyle. Purchase an investment property now and create financial options for your future.
You don’t technically have to be renting either to enjoy the advantages of ‘rentvesting’. Some Gen Y’s are perfectly happy remaining at home with mum and dad whilst they save a deposit. Just keep in mind you don’t necessary have to save up for your dream first home before you buy. Consider an investment property to build up equity and wealth.
2. Create additional income and tax benefits
Making a big financial investment and commitment can be scary and some Gen Y’s may feel it will limit or reduce their disposable income. The benefit of property investment is that it creates two additional streams of income: rent and tax benefits. ParkTrent CEO, Ron Cross, says in most cases a property investment won’t cost you a thing.
“Provided you have an income in excess of $50,000 a year, the rental income and negative gearing component will pay 100% of an investment property if that investment property is a new property.”
When it comes to tax time, some of the expenses on an investment property you can claim, according to the ATO, include:
- Water and council rates
- Home insurance
- Advertising for tenants
- Borrowing fees and expenses
- Agent fees and commission
- Pest control/cleaning/gardening
- Repairs and maintenance
- Depreciating assets
- Land taxes
- Interest on mortgage repayments
So while home ownership may seem out of reach, an investment property is often a financial viable option that you can leverage in the future.
3. Prepare for retirement
Most Gen Y’s probably think it’s too early to start thinking about retirement. The truth is, it’s never too early to start planning for your future. With uncertainty over the future of the pension, and superannuation unlikely to be enough on its own to cover the costs of retirement living, it pays to prepare now. And a carefully considered property investment can create future financial freedom.
“If you look at the property market historically, in most cases property prices have doubled between 10 and 12 years,” says ParkTrent CEO Ron Cross.
“For example, if you hold a $200,000 property, after 10 years it will be worth $400,000, in another 10 years its $800,000. What if you started off holding a $400,000 property? It would double just as fast.”
Entering the property market as soon as you can means you can start building wealth as an investor and put it towards your future owner occupied home. It’ll also provide the opportunity to build a larger investment portfolio which you can put towards your retirement.
Are you ready to start ‘rentvesting’?
Learn more about getting started in property investment at one of our free upcoming property investment seminars, contact us today for more information, or join our mailing list to keep up to date on all the latest property market news.
You can also listen to CEO Ron Cross discussing ‘rentvesting’ on the 2UE radio segment My Property. Just click through to the 2UE My Property page and listen to the podcast dated April 15.