In more recent times the rise of rentvesting has provided options for those who would like to get onto the property ladder while still living in their area of choice. Purchasing in an area that shows signs of long-term growth and a good rental yield can help in starting a property portfolio while renting in a different suburb that may be closer to work, schools, or amenities.
Why rentvest?
Rentvesting means that while you cannot afford the property prices where you want to live, you can still get on the property ladder. You may be at a stage in your life cycle where you need to be close to schools, have relocated for work or there are lifestyle choices that are appealing to you.
Just because you are renting in one area, doesn’t mean that you can’t begin your own wealth creation and investment options while building a strategy towards your retirement. Researching areas of higher yield can provide insight into potential growth areas and options to begin your journey.
Your bank can talk with you about your borrowing power and will consider potential rental returns during your assessment. While you are renting, you will also reduce costs to maintain the property you rent as this becomes the landlord’s responsibility.
Negatives of a reinvestment strategy
Building your property portfolio can provide dividends for the future however there are some downsides to this approach. You will lose any exemptions that exist for primary dwellings and capital gains tax and any profit made when you sell the property at a later will be subject to this tax.
Renting where you want to live will also mean that you have less control over any longer-term outcomes as your tenancy will depend on the needs of your current landlord. They may need to carry out work on the property or decide to sell depending on their circumstances.
If you do not research your areas thoroughly, you may find that you are paying additional funds toward a mortgage over your investment as well as any rent increases adding more pressure to your cost of living. This can leave you suitably out of pocket and speaking with a financial advisor about the best approach for you and your situation can be worthwhile.
If you are in the market to purchase your first or subsequent investments or are a rentvestor looking for a new home, contact our property management and sales team to talk about your options.