With housing values rising substantially faster than household incomes, raising a deposit has become more and more challenging for many Australians, especially first home buyers.
Sydney is a prime example where the median house value is now just over $1.3 million. On the Northern Beaches, the median house price is now $2.21 million, up $290,000 in just six months! In order to raise a 20 per cent deposit, the typical Sydney house buyer would need upwards of $260,000.
Existing homeowners looking to upgrade, downsize or move home may be less impacted as they have had the benefit of equity that has accrued as housing values surged. So, how do you get a foot in the door when the barriers to entry are so high?
You may have heard the term ‘rentvesting’ being bantered around. Rentvesting is the smart answer to growing wealth and living where you want to live. Let’s take a look at how it works.
Basically, rentvesting is the approach of renting where you want to live and work while investing in property in other, more affordable areas that are poised for substantial growth. Whilst rentvesting isn’t a new concept, it’s certainly becoming more popular as property prices in Sydney continue to increase. It can be the perfect way to get started in the property market and in fact more and more savvy property investors are opting to rentvest as a way of life as it presents such an incredible opportunity to grow their wealth whilst not compromising on their lifestyle.
Benefits of rentvesting
Enter the property market sooner. Rentvesting allows you to break into the property market sooner with a smaller deposit, as opposed to waiting several years until you can afford your dream home.
Live the lifestyle you want. If rental prices allow, you can live in your dream home now and not have to compromise on location or features. Also, because you are renting, you can easily upgrade or downsize to a different home if ever your financial situation changes without having to worry about stamp duty or other legal expenses.
Build wealth. Rentvesting allows you to start building your investment property portfolio, which can be used to generate wealth and security for yourself and your family’s future.
Tax benefits. Your own home is not tax-deductible, and so rentvesting may provide tax benefits that you wouldn’t otherwise get which gives you the chance to build your portfolio faster. You may also be able to claim depreciation on the building, plus in some instances any new fixtures and fittings added to the property.
Cost savings: As a renter, your landlord is responsible for the maintenance, upkeep and safety of the property, as well as covering costs such as council and some utility services (outside of usage), and any potential body corporate fees, etc. They will also cover the upfront costs such as stamp duty and potentially Lenders Mortgage Insurance. It’s worth noting that as a potential rentvesting landlord, you too will have to cover the cost of these items, but in many cases, they are tax deductible.
Research is the key to a successful rentvesting strategy
Where you want to live and the best place to buy an investment property are rarely the same, so rentvesting allows you to be strategic when it comes to choosing an investment. This means you can make investments that return the greatest capital gains and get you on the road to building a successful long-term property portfolio.
Richard Sheppard is the Managing Director of inSynergy Property Wealth Advisory. inSynergy provides professional property investment advice, property market research, specialised mortgage broking services and is an accredited investment property buyers’ agent. Visit www.insynergy.net.au or phone 1300 425 595.
Important Note and Warning: This information is general in nature and should not be considered personal tax advice. We highly recommend you discuss these concepts with your accountant, property investment adviser and investment finance mortgage broker jointly to ensure any considered concepts are suitable for your personal financial situation, as one effect of the concept may negatively impact another part of your plan.