Rentvesting: A Viable Strategy

The Old Way of Thinking

The old school of thought regarding homeownership for the average person tended to focus on buying a home you can afford. You then build equity and use it to purchase a home in your preferred area. The problem with this strategy is that you never catch up. Because as your home equity grows, the prices pushing your own home equity up are also pushing up the prices in your preferred area. The result? Chances are you never catch up.



The other scenario is you continue living in the area you hate, paying the mortgage and waiting for equity to build that actually never comes. So, you are forced to sit on your money and miss out on opportunities. However, the rentvesting approach is designed to help you live affordably in your preferred area now by renting, while also owning a property to generate income through rent in a more affordable area.

Being Priced Out of the Market

If you feel you’ve been priced out of the market in your preferred area to live, rentvesting is often the workaround. When you rent in your dream neighbourhood, you can live the lifestyle you love. You then buy a home in the areas with the best investment property opportunities at a price you can afford. It’s simple and effective.



The Right Balance for Rentvesting

The trick to rentvesting is finding a rental home where you can live that is less than a mortgage and then finding an investment property you can rent to tenants for more than your mortgage payments. Since you generally can find a rental home for less than a mortgage, this strategy is viable. As well, you have to consider the savings for things like fees and deposits for renting your home compared to buying one to fully understand the cost benefits of this strategy.

Doesn’t Rentvesting Double Monthly Costs?

This is a common question people ask when they consider the rentvesting proposition. Doesn’t rentvesting double your monthly costs? Although the answer to this is yes, remember the costs for the property you invest in for tenants are covered by the rent they pay you. The benefits here are that you are living in the area you prefer, while you make money from a rental property in an area you don’t wish to live in.

You get the best of both worlds: You own property with the mortgage covered by tenants to build equity, while you rent in the area you love, without paying a high price tag for your mortgage. It is a win-win situation where you generate additional income to cover expenses, pay down your mortgage and earn a profit you can use to buy more properties, or towards a down payment in your preferred area.

Tax Benefits of Rentvesting

One of the main advantages of rentvesting is the tax deductions you get as a landlord. The Australian Taxation Office allows you to claim several expenses related to your rental properties including:



• Land taxes
• Mortgage repayment interest
• Water and council rates
• Insurance
• Advertising
• Agent fees and commission
• Repairs and maintenance including cleaning, gardening, pest control, etc.
• Depreciation deductions for the building structure

All of these deductions help offset your costs which can go towards the rent you pay for your own home. This increases cash flow for savings or living a better quality of life.

Purchase in an Affordable Area

Most people who can’t afford to live in their preferred area end up settling for an area they don’t love. As a result, you are stuck in a lifestyle you didn’t bargain for with a longer commute to work far from the people, activities, and places you love. With rentvesting, you still buy in a location you can afford, but don’t have to live there. You use that property to generate income.



You continue living in the city you love, with your foot on the first rung of the property ladder. You build your assets because you buy in a rising market. This escalates how your property’s equity grows to provide more cash to invest.

How to Make Rentvesting Work

Rentvesting isn’t for everyone. It takes careful research if you want to make it work for you. Research is important because when it comes to property investment, even for rentvesting, you need to find the right location. When your purchase price upfront is lower, the maintenance required on the building is minimal, and the rent you collect is maximized, your rentvesting strategy works.

Better yet, the property you purchase should not only already have proven rental opportunities at a rate that will cover your mortgage, but that also has high potential to increase in value in the near future. When timed properly, your tenants pay your mortgage, your tax deductions make your own rent more affordable, and in a few years, you can sell for an impressive profit to help you meet your dream of homeownership in your ideal neighborhood.

An investment property buyer’s agent understands the market and can help you find the right area with reduced prices. Their knowledge is an invaluable tool that reduces risk and ensures you maximize your income potential. You’ll find a rentvestment opportunity that allows you to meet your goals whether it is homeownership in an area to suit your lifestyle or building an investment portfolio.