MAINTAINING A HOME

Video: What Is Rentvesting?

22 November 2020

The pros and cons of Rentvesting

Suncorp’s Andy Wilgose explains what Rentvesting is, why it’s an increasingly popular home-owning strategy and some of its pros and cons.

Rentvesting is a popular strategy in Australia when people are purchasing a property.

Often, they’ll purchase an investment property or multiple properties in rural or regional areas where typically prices are lower than in a CBD hub like Melbourne or Sydney.

People will then look to rent a property in the CBD, so they’ve got the benefits of a city lifestyle such as transport, eating out, and great schools for kids.

One other benefit is that you can use the income from the properties that you’ve purchased to even pay for your rent.

Why is Rentvesting popular?

A lot of the price increases that we’ve seen over the last decade have been for dwellings in the likes of Brisbane, Sydney and Melbourne. It means these properties are out of reach for a lot of people or a bit too much of a stretch.

Rentvesting means people can get a foot on the property ladder and purchase a property in lower-cost areas without giving up the benefits of a city lifestyle.

And often people want to purchase a property, but they can’t pick up their lives and move out to a regional area. So, by buying in these regional, rural, and lower cost areas and renting in the city, they get the best of both worlds.

What are the benefits of Rentvesting?

Some of the benefits of Rentvesting are you get to live where you want; you’re not restricted to where you can only afford.

And obviously investing in investment properties, you may get some tax benefits.

You also get the benefits of being a tenant. Those benefits might be if your washing machine or dishwasher breaks, you’re often not up for those bills.

What are some cons of Rentvesting?

Whilst being a tenant is great and you get some benefits, there’s also downsides to that. You may need to make the property you’re renting available for things like open for inspections. You may even need to vacate the property if the landlord decides to sell, sometimes two or three times, which can be really inconvenient.

As with any investing as well, you’ve got make sure you don’t get in too far and overextend yourself.

What to consider before Rentvesting

Some of the things to consider before Rentvesting is what’s important to you. If lifestyle is important, then Rentvesting may be for you. You may want to sacrifice and move further out, that’s up to you.

Suncorp Bank can help if you’d like to purchase an investment property. You can come into one of our stores and speak to one of our awesome team, our website Suncorp.com.au, or you can call us on 13 11 55 and we’ve got lots of people who can help you find out about the investment loan options that may be available.

Rentvesting explained

Rentvesting is a home-owning strategy where you rent a property to live in that’s right for your lifestyle, while you own an investment property that’s right for your budget.

As home prices in inner-city areas have gone up, this strategy is increasingly popular, especially among younger buyers.

Why Rentvest?

At first, it might not seem to make sense – why pay off a mortgage and rent at the same time? Wouldn’t it be easier to just buy your home?

There’s no one right answer. It all depends on your budget, life stage and the lifestyle you want.

For example, perhaps you’re single and you want to get into the property market but the home you want isn’t in your price range. Or maybe you’ve scored a great rental property and the timing isn’t right for a move. Or you’re happy with inner-city living for now, even if you know down the track you’ll want to move to a more spacious home further out.

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Rentvesting can give you the best of both worlds. You can buy a property and rent it out to cover some or all of your ownership costs, while continuing to rent the home where you live. If your investment property is earning you a profit, you could even use that income towards your home rental costs.

You might end up spending around the same if you were just renting or if you were living in a home you owned. The difference is, you can live where you want and get your foot in the property market.

Rentvesting pros and cons

You get to live where you want:

As a Rentvestor, you’re not limited to where you can afford to buy.

Low maintenance costs at your rented home:

As a tenant, you most likely won’t be responsible for any maintenance costs caused by natural wear and tear. For example, if there are issues with the hot water service, your agent will organise the repair (depending on your rental conditions).

Potential tax benefits*:

You may be able to claim some investment property expenses as tax deductions. These include the interest charged for loans, rental costs like insurance and advertising, and depreciation costs. The Australian Tax Office explains when you can make these claims.

Rental income:

You can use income from leasing out your investment property to pay down the mortgage on the property or to pay your own home rental costs.

Potential capital gains:

If your investment property increases in value, you could sell it at a profit down the road.

Your primary residence will be less secure:

You may have to move if the owner wants to vacate the property or change tenants.
You may have to make the property available for inspections.
Your rent could go up

Ongoing home ownership costs:

As a landlord, you may will normally be responsible for the costs and management of repairs to your property. You may also have to pay fees to a leasing agent. If your rental income is less than your ownership costs, you’ll need to make up the difference, on top of paying your own rental costs

Capital Gains Tax liability*:

If you end up selling your investment property, you’ll need to pay tax on any capital gains. You don’t have to pay CGT on most owner-occupied properties. The ATO explains how this works.

No access to First Home Owners Grant:

Rentvestors aren’t able to access the First Home Owners Grant, which is available for certain first-time, new home buyers who will occupy their property for the first year. Rules vary depending on the state or territory. Find out more here.

Potential capital loss:

If your investment property decreases in value, you might have to sell it at a loss.

*If you’re thinking of investing in property, it makes sense to get professional advice from a qualified financial planner.

With the right guidance, you may be on your way to living the life you want now, while planning for a secure future. If you’ve decided Rentvesting is for you, give a Suncorp Home Loan specialist a call—we’ll help find the loan for you!

Any information or advice is intended to be of a general nature only and has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Information Document before making any decisions about whether to acquire a product.

Home Loans are issued by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No 229882 Australian Credit Licence 229882 (“Suncorp Bank”) to approved applicants only. Please read the relevant Lending Fees and Charges brochure, your Credit Contract and any other applicable Terms and Conditions before making a decision regarding any Suncorp Bank products or features. Fees, charges, terms and conditions apply and are available on request or on our Product Information Documents and Forms page before making any decisions about whether to acquire a product.

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