If you thought you were never going to be able to build a property portfolio.... have you you considered rentvesting? Don't know what rentvesting is - read on!
Owning a home was once the Great Australian Dream. However due to the soaring prices of property in Melbourne and tightening of loans from the major banks, those dreams are starting to end for many residents of Melbourne. The median house price in Melbourne is around $900,000 and for first home buyers this is quite unattainable.
So , instead of buying a property they really want, many purchasers are now looking to rent the home of their dreams in the area of their dreams and are turning to buying investment apartments or properties in areas further from the Metropolis and renting those out. This is Rentvesting.
In short, the property you purchase is rented out and this rent covers the cost of the loan plus outgoings (where possible) and when you sell it down the track, this is where you make your gain. Rentvesting allows you to live the lifestyle you want while at the same time entering the property market.
Let’s assume for example, your dream home leads to mortgage repayments of $5,593/month. If you were to rent this dream home, the rent may be $2,600/month. You purchase an investment apartment to rent out and the mortgage repayments are $2,148/month (we expect about a 5.1% return if you invest at FIFTEEN85 for one bedroom apartments)…. Each month you are now paying $4,748. You are living your dream lifestyle, you’ve entered the property market and in this example you have saved just under $1,000 per month.
While many people believe rent money is dead money, in today’s market this strategy of rentvesting allows people to enter the market and build their wealth. We ask, what’s better, paying off a large mortgage or owning several properties?
Pros and cons of rentvesting
- Enter the property market sooner
- Live the lifestyle you want
- Start to build your wealth and portfolio
- Accrue your capital gains to allow you to ultimately purchase your dream home
- Move around: You can also move around and try out an area – who knows your new dream home / suburb could be out there and you never thought of it!
- Tax benefits: speak to your financial consultant or tax advisor to learn more about this as it is different for everyone
- Choose where to invest: with so much competition out there – there are so many possibilities for investment for you. Find the best deal that suits you and your situation.
- Depending on your thought path, some people believe rent money is dead money
- You technically don’t own your own home – you own investment properties
- You can’t just update the investment property when you feel like it – you will need to follow the Residential Tenancies act of VIC
How to decide on the right approach for you?
Unfortunately there is no 100% definitive or correct answer here. Rentvesting comes down to your personal preference and your financial position.
We encourage you to talk with trusted advisors (e.g. parents or siblings, friends), then speak with the experts, lawyers, accountants, financial planners and sales teams. Sales teams know the local market and they are best poised to offer advice as to what is happening both from a lifestyle and financial position.
In the end, the decision is for you and you alone to make!