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MAINTAINING A HOME

Video: What Is Rentvesting?

22 November 2019

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 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. According to Domain.com.au , in 2016 approximately a third of investors were also renters.

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.

Explore Home Loan Options*

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

Pros

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.

Cons

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 (between $7,000 and $29,390), 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 about investing in property, it makes sense to get professional financial advice. A Suncorp Financial Planner can help you live the life you want now, while planning for a more secure future. Rentvesting could be one way to make it happen.

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Information is intended to be of a general nature only and any advice 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 Disclosure Statement or Product Information Document before making any decisions about whether to acquire a product.

* Banking products are issued by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No 229882 Australian Credit Licence number 229882 ("Suncorp Bank"). Fees, charges, terms and conditions apply and are available on request. Suncorp Bank is only liable for the banking products or services it provides and not the products and services of the other companies in the Suncorp Group. ^Financial product advice is provided by representatives of Suncorp Financial Services Pty Ltd ABN 50 010 844 621, AFSL 229885.

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