How to get onto the property ladder through rentvesting

How to get onto the property ladder through rentvesting

Getting a foot on the property ladder might seem like an insurmountable goal for some people as they struggle to save a deposit, secure approval for a home loan, or grapple with the ever-increasing mortgage payments associated with astronomical housing prices, but did you know that there might be another way to achieve your dream home? It’s through a practice called rentvesting.

What is rentvesting?

Rentvesting is the term used when a person purchases a property with the sole purpose of using it as an investment rather than their Principal Place of Residence (PPOR). While renting the investment property to tenants, the owner will live elsewhere while their rental income contributes to the mortgage and their investment grows over time.

It isn’t just first home buyers who can benefit from rentvesting. Some experienced property buyers actually choose to rent despite owning several investment properties. The theory is that they are then free to live where they want, such as an inner-city location or in a property they could not otherwise afford to purchase while buying their own properties in up-and-coming, high-growth areas close to schools and infrastructure that have more affordable housing.

With the ultimate goal of achieving financial security or their dream home, many people now use rentvesting as a means to build equity that they can then use to buy their next bigger or better property as they climb the property ladder.

What are the benefits of rentvesting?

There are many benefits to rentvesting, including a number of associated tax benefits, which will vary depending on your personal situation.

Rentvesting suits purchasers who cannot yet afford to buy their ideal home but want to kickstart their climb up the property ladder. The sooner a purchase is made, the sooner equity can be built in the investment property, ready for the next purchase to be made.

Another benefit of rentvesting is the freedom to purchase a property in an area you wouldn’t necessarily live in, but that has good prospects for a high rental yield and/or capital gains. For example, if you would like to live in a two-bedroom unit in an expensive suburb but can only afford a house in a less expensive suburb, the option exists to purchase the house and rent it out while you rent the two-bedroom unit elsewhere. In the meantime, you are building your wealth as your mortgage decreases and the value of property rises.

Freedom also brings flexibility, which is another positive part of rentvesting. Many homeowners feel trapped once they commit to a large property purchase, but rentvesting allows the owner to live in another city, state, or even country while their secure investment continues to grow.

Are there any disadvantages to rentvesting?

The biggest drawback is that you must still rent elsewhere while your property is occupied. For young property owners who are happy to continue living with their family this may be more palatable, but for those seeking independence owning a property and paying rent on another can be frustrating.

Another benefit rentvesters miss out on is the security of owning the property they live in. When renting, even if you are an excellent tenant there is always the possibility of being asked to move out or the rent is increased. These things won’t happen if you live in your own home.

What are the first steps to becoming a rentvester?

If rentvesting sounds like the type of solution that aligns with your situation and financial objectives then you should start researching. Speak to a mortgage broker to find out what type of property you could afford and then ascertain if rentvesting will in fact be beneficial to you in the long term. If you can’t afford to purchase your dream home just yet, rentvesting might be the next best option!

For more information on this, speak to our experienced Mortgage Brokers today on (07) 4052 0750.