I know the word ‘rentvesting’ isn’t actually in the urban dictionary, yet ‘covfefe’ being the Trump typo has gained momentum, it’s a word worthy of research; rentvesting is a common term to express buying an investment property while continuing to rent. While some of generation Y are complaining about unaffordable house prices in cities such as Sydney and Melbourne others have decided to actively pursue rentvesting their way into the housing market.
Rather than initially buying a property to live in rentvesting for many gen Ys is seeing them rent close to the city, near their work and social circle and investing in more affordable suburbs, renting the investment property while building up equity.
How does it work?
Purchasing a property in Melbourne or Sydney as a first home buyer is expensive, however renting in those cities is more affordable. Renting also gives you more flexibility to move and change according to your needs; you may be required to move for work or due to family issues. Purchasing a property in an affordable city or surrounding suburb requires a smaller deposit than investing in your dream home and can have you investing in the property market sooner.
The key is to find high growth suburbs with an above average rental yield. This will cover most of your investment properties costs and as your equity in the property grows it can return a positive cash flow within a few years.
Another advantage of rentvesting is the tax benefits such as being able to claim interest on loans, management expenses and maintenance costs as well as borrowing expenses, depreciation and capital works expenditure; these are but a few claims you can make to reduce your tax.
Whilst it may be more savvy for some to purchase a property off the plan at today’s price, knowing that by the time the property is ready for rental the value has already increased or may you prefer to purchase an old established property ready for renovation while you’re receiving rental income, gen Y are finding creative and innovative ways to get into the property market without causing too much change to their current lifestyles. You can have your smashed avo in spite of Bernard Salt. If you would like to build equity and create wealth speak with one of our financial advisers and mortgage brokers to plan a strategy that is right for you. Ph: (03) 5976 8426