Rentvesting in Australia - Paving the way to Prosperity

Shakira
Post : December 29, 2022

Rentvesting has become a household term. This is because people prefer buying investment properties rather than a home. Australians have seen this strategy's affordability and smart move, which is why they welcome this real-estate strategy. 

Studies have shown that the average investor's age is lower than 34. This means that younger generations are fully aware of their future and the responsible measures they have to take.

Rentvesting is a lifeline for people trying to have a foothold in the real estate industry. Everyone has been taught to buy their first house in the suburbs with a stable career. However, these outdated notions have no place in the current property market. 

House prices are through the roof, and there is no viable solution when it comes to selling houses for an affordable price. Therefore, rentvesting is the ideal move to save yourselves from going broke and being a lifelong renter.

How does it work?

Most people consider this a financial tactic that helps you avoid obstacles that may come from property prices. This ensures that you can buy in a location that fits your budget and then rent in a place that fits your ideal lifestyle. 

This strategy always comes through because, although you are renting, the property you are purchasing is your asset that gets bigger in market value. However, it depends on the location you decide to buy. 

Most importantly, you will be acquiring equity which can also help you buy other properties in the future.

Who needs it?

Rentvesting is a helpful strategy for people who want to live in luxurious and expensive cities. As many cities in Australia tend to have a booming economy, people also want to live in cities with much more developed infrastructure. 

Better school systems, job opportunities, hospitals, and universities are key functions of these big cities. Therefore the demand for these capital cities is getting higher by the day.

A median price for a particular unit in Sydney is in the range of $700,000s, but the yield is only around 3.5%. A rentvesting approach lets you buy your investment property in a large capital location further away from the city. 

Then you can easily take the benefits of the lower asking rents in the city. This is the best solution for the modern-day rising market prices. Rentvesting is not only for those who are financially handicapped but for people who need an exciting change in their life. 

Such as for travel enthusiasts, people who move for work, and someone who likes to live in a cool suburban area with a lot of entertainment and lounging facilities that are out of their budget.

Advantages of rentvesting

  • Rentvesting helps you get into a property much sooner

If you are buying a property just for the sake of wealth creation, you basically have to go after the capital growth. However, capital growth needs time to work out effectively. So buying today, then waiting 5 -10 years from now while you develop your income is an imperative milestone for growing your future wealth.

  • Select a financial system that lets you have a small deposit, much less than 20%

A smaller deposit for an investment loan is a pragmatic approach if the rental income offsets the mortgage. A mortgage expert with expertise and knowledge can help you guide through this.

  • The flexibility and the freedom to live in a place that you can not afford to purchase

This is one of the best advantages of rentvesting because you can move without any solid expenses. This is highly ideal for career-oriented individuals who always move around for work.

Disadvantages of rentvesting

  • The cycle of renting continues

This really depends on the person. The lack of freedom to personalise the house and personal relief to live as if they own the property can be frustrating.

  • Having to pay for the capital gains tax

This happens when your property grows in value according to market prices, and the amount of capital gains tax can vary with the property's rising prices.

  • Missing out on the 1st home buyers grant

To be eligible for this grant completely depends on your state or area. 

How rentvesting grows your wealth

Wealth creation through properties is basically owning a bunch of properties and hopefully waiting until their value grows. Rentvesting is similar in nature.

For instance, the ideal renter has a $40,000 deposit and thinks of buying a $600,000 investment property which grows by 7% annually. After 5 years, the individual has gained substantial capital on the home. 

Additionally, a proper rentvestor with the right financial structure can continue saving up while renting and give them sufficient opportunity to add to their property portfolio.

Is it for you?

It all depends on your preference and certain life changes you want. Rentvesting has both advantages and disadvantages. However, it can be adapted according to your desired lifestyle. 

If you are someone who values stable living in a house where you feel a sense of ownership and pride, rentvest is obviously not for you. But if you choose to rentvest, you will join a large group of Australians who also picked this path of prosperity.

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