Rentvesting: Maximise lifestyle, minimise tax.

I love living in the home I live in, it’s probably worth around $1.5mn. While I could afford to buy it, I am then putting all my cash (and a large chunk of my income) into one asset - not the best for diversification. Also, is Darling Point growing as quickly as Perth or Tasmania right now, or the North and South Coast of NSW? While it’s great to be paying off your own mortgage. There are some key benefits to renting where you live and owning an investment property where the best growth will be.?

In this article, I will explore the concept of rentvesting and how it can be a game-changer for financial success.

Understanding Rentvesting

Rentvesting simply means renting where you live while having a tenant in your investment property. There are 2 main reasons why people do this - tax and flexibility.?

In previous articles I have written about the benefits of owning an investment property, from passive income to negative gearing, the benefits of owning an investment property are well known. Rentvesting takes this strategy one step further. Generally speaking, people that rent a home are doing so because they can’t afford to buy that home - but it’s where they want to live. By rentvesting, I’m able to live where I can’t afford to buy and buy where I can afford. This not only gives me the lifestyle I want, but enables me to get my foot into the property market and purchase an investment property that over time, will appreciate in value and enable me to purchase another property sooner.?

The Benefits of Rentvesting

Extra Income Stream: Rentvesting creates an additional passive income stream. Whether you then choose to make P&I repayments so that the property becomes positively geared or you keep it as interest only to maximise your tax deductions the return from owning an investment property is immediately felt vs living in your own home.?

Flexibility and Lifestyle: Renting allows you to live where you want to, not where you can afford to.?

Tax Advantages: Claim all the expenses of owning an investment property on your tax return - can’t do that if you live in the home.?

Opportunity for growth: Broadly speaking, where you want to live is probably not where the best growth is - obviously this is not always the case. But by seeking the advice of professionals who spend a lot more time identifying growth areas across Australia than you or I ever would, you will have the best possible chance of ensuring your money is working as hard for you as possible.??

Ability to leverage: Once you buy that first investment property, the next one is easier. You can use equity in your first home to help you buy the second. If you need to wait an extra 2 or 3 years to save up for that dream home to live in, you have missed out on 2yrs + of capital growth.??

Challenges and Considerations

While rentvesting can be highly lucrative, it comes with its own set of challenges and considerations:

Costs: Ultimately, you are paying rent and still liable for a mortgage, this is mitigated by having a tenant, but there may be some periods where you have no one paying your mortgage.??

Paying someone else’s mortgage: The old adage, I don’t want to pay for someone else’s mortgage. If that’s the case, be prepared to live in an area or home that is less desirable than if you were renting.?

What if your investment property doesn’t increase in value: This would be a concern, but at the end of the day, this risk is relevant to all property purchasing.?

Why am I an advocate for rentvesting? I’m not, I think if you can afford to buy where you want to, you should. However, I see and speak with so many people that have enough money to purchase an investment property but are waiting till they have enough to buy a home to live in. In the time you take to save up that extra couple hundred grand, you could have bought one or two investment properties and then use the equity in those homes to purchase your home to live in. Take the emotion out of it, get over paying someone else’s mortgage and become a landlord yourself.

Keen to discuss whether you’re ready to become a rentvester? Reach out to me so we can discuss! It’s free!?

Disclaimer: The information presented in these articles is for informational and educational purposes only and should not be considered as personalised financial advice. The content is intended to provide general information and should not be used as a replacement for professional advice tailored to your specific circumstances. It is important to evaluate your individual situation and seek the guidance of financial and legal experts before making any financial decisions.