As property prices continue to rise in Cairns and other Australian cities, purchasing a home in a centrally-located or sought-after area is out of reach for the average working millennial. The home loan for such a property would put a lot of financial strain on most people and over time, you would end up paying a lot of interest. Instead, many people are opting to rent rather than buy their home as it means not having to compromise their inner city or beachside lifestyle. But for those who are still eager to enter the property market, there is a way to get the best of both worlds.
‘Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location and continue to live and rent in the area of your choice. An example of how the market is evolving, it is a wealth creation strategy that is popular among the younger generation due to the flexibility it offers in comparison to being an owner-occupier.
Generally, Millennials aren’t interested in purchasing a property in the outer suburbs and then having to commute into the CBD. Rentvesting allows your rental income to cover the loan expenses, so you can keep living the lifestyle you want without financial costs. This allows you to continue to live in the house and suburb of your personal preference whilst still investing in the property market.
Does Rentvesting suit everyone?
For this strategy to work, you’ve got to be a good saver and there needs to be a focus on delayed financial gratification. You would need to be careful with your money and not spend big when starting up. This would allow you to save your deposit for your home loan. Forget about negative gearing and tax minimisation when it comes to your home loan. Instead, buy neutrally or ideally positive gearing as this provides higher rental yields. You need to do your homework when taking out your loan. Speak to different lenders and research the different loans types and interest options.
A recent Mortgage Choice survey highlighted an increase in ‘rentvesting’ from 21 per cent of investors to 37 per cent over the past twelve months alone. But while this strategy may appear ideal to many, it’s not suited to everybody.
Rentvesting requires a different way of thinking. In the past, the great Australian dream has been to buy a home and then pay your home loan off as quickly as possible so that you can eventually live debt free. Rentvesting is the opposite and you have to accept that it’s okay to be in debt as long as you stick to your budget and keep using money to invest further.
To ensure you have the means to make ‘rentvesting’ work for you, contact us at Preston Finance in Cairns for advice on good debt and other strategies that will allow you to maintain your current, personal lifestyle. At Preston Finance in Cairns, we can offer financial advice on the many different home loans available and how they differ in term of interest and conditions.
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