How Rentvesting could help you enter the real estate market

This article is sponsored by Westpac.

Residential property prices in Australia are on the rise. Specifically, over the past twelve months residential property prices have increased 7.5% on average in our capitals, according to the ABS.

While the statistics can be daunting for first time buyers, you can use certain strategies to enter the real estate market. After all, in a study conducted by Westpac, 27% of young Australians said buying a home would best describe their financial goal for 2021.

The dream of home ownership is still there, but the way it comes to life may not feel like it used to.

Rentvesting is becoming an increasingly popular strategy that people are using as a means of enter the real estate market and potentially increase their wealth.

Here’s more on the booming trend.

What is rent vesting?

Annuity vesting refers to when a person rents a home in an area that matches their desired lifestyle while owning an investment property in a more economical area.

It has become popular among younger buyers who have been unable to shop in downtown areas. For example, the average house price in Melbourne’s northern suburb of Fitzroy is $1.4 million, while 63% of the population would be renters in the area by comparison.

Westpac data revealed that 70% of young Australians are either interested in or already rent to support their ideal lifestyle, showing that its flexibility potential is a huge win.

What are the advantages of rentvesting?

There are a variety of potential benefits to rentvesting.

Rentvesting offers young people the opportunity to enter the real estate market earlier. Buying an investment property in a more affordable area could ultimately mean saving for a smaller deposit. It’s appealing to young people who rent in inner-city suburbs (which may exceed their buying budget) while still maintaining their lifestyle.

Once you are on the property ladder, there is also the possibility that your property may increase in value over time and help you build your wealth portfolio. If that happens, you may one day be able to sell your property for a profit (which could help you buy in your dream suburb). It’s important to search for high-performance suburbs within your budget before buying an investment property to maximize your chances of future profit and always keep in mind that you may have to pay taxes on any profit you make.

Another advantage of rentvesting is that you may be able to claim tax deductions against your income from real estate investments. This includes expenses such as interest charged for loans, rental costs such as insurance, advertising, strata maintenance and depreciation costs are tax recoverable.

Finally, you can use the rental income from your investment property to help pay your mortgage. and if there are any left, it could go to help pay for the rental costs of your own home.

What are the disadvantages of rentvesting?

It is important to recognize that rentvesting may not work for everyone when trying to enter the real estate market. It depends on your budget and your needs.

Rentinvestors may not be eligible for certain government-funded programs, such as the First Home Owner Grant. If you’re looking to finance part of your first home with a government grant, it’s worth considering what buy-to-let investment can and can’t afford you.

Some first-time home buyers may find it suits their schedule and lifestyle to save up longer to buy a home to live in from day one in the area of ​​their choice. The ongoing costs of renting and maintaining a mortgage, even if funded by tenant income, can be a difficult annuity juggler.

There are also a variety of responsibilities that come with renting out your investment property. If you’re short on time or inexperienced, it may be worth considering hiring a professional property manager to liaise between you and your tenants, but this will incur additional costs.

As with all financial decisions, it is recommended that you get as much expert advice as possible before investing in an annuity. Do your research around the booming suburbs and market trends, rub on the rental market and create your own savings goals — this will help you decide which homeownership strategy is right for you. It’s important to remember not to lose hope when it comes to ownership – Although rising real estate prices are making it harder to get your foot in the door, there are ways to get there and still live the downtown dream.

Conditions, credit criteria, fees and charges apply. Credit provided by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit License 233714

The tax situation described is a general statement and should only be used as an indication. It does not constitute tax advice and is based on applicable tax laws and their interpretation.

Penny D. Jackson