There’s a new hot topic (one of the others is ‘build to rent’) in real estate circles and it’s called rentvesting. It’s a growing trend that challenges traditional home ownership rules, as you rent in one suburb but buy in another. Today we’re lifting the lid on rentvesting, defining the term and discussing the pros and cons of rentvesting in the Inner West.
What is rentvesting?
Rentvesting is the term referring to buyers who rent a property in their most desired neighbourhood but buy an investment property in a more affordable suburb or regional area. It’s a trend geared towards young first-home buyers who want to get that first rung on the property market ladder without sacrificing their lifestyle, as it offers the best of both worlds.
Rentvesting is growing particularly in capital cities like Sydney and Melbourne where there is a significant price gap between rental and mortgage payments. Let’s take our beloved Inner West, for example, with its coveted lifestyle close to the water and CBD. With interest rates still on the rise, while there are high rents on some properties, often it’s still more affordable to rent compared with buying.
The property management team at Belle Property Balmain has their finger on the pulse and we can tell you that two-bedroom apartments in the Inner West renting for $500 to $700 a week are in demand. But to buy a two-bedroom apartment in the Inner West, your repayments could be up to $3,500. So with that extra $700 to $1,500 a month, the rentvesting aim is that you’d reinvest the difference to build up your wealth.
The pros of rentvesting
Before we discuss the pros, let’s begin with the catch-22 situation of renting versus homeownership. For example, rental benefits include low maintenance costs, but then you have home ownership costs. In contrast, renting does come with uncertainties like needing to vacate and price increases, but then this can also benefit homeowners. Here are more rentvesting advantages:
Lifestyle
The biggest benefit of rentvesting is of course renting wherever you want as you’re not limited exclusively to where you can afford to buy. Your most desired suburb might be for several reasons, like the lifestyle benefits, good local schools, easy access to amenities or great public transport links.
Wealth building
This is another big advantage of rentvesting. The aim of the game is to build wealth and your investment portfolio by saving on mortgage repayments and investing the difference.
Tax benefits
There are lots of tax benefits, including depreciation costs, that are afforded to investment property owners. Depending on the situation, you might also be able to claim stamp duty and conveyancing fees.
The cons of rentvesting
On the flip side, let’s look at the disadvantages of rentvesting.
Loss of tax exemptions
Yes, while there are tax benefits to rentvesting, there are also tax exemptions. The big one is paying capital gains tax on any profit you make when you sell the investment property. However, in regional areas, while you might achieve great returns, capital growth is lower than in the cities. That’s a mixed blessing but the good news is you’ll pay lower capital gains tax when it comes time to sell.
Societal expectations
Rentvesting is a trend that goes against the norm and the deeply entrenched “Australian dream” of buying a home, getting out of the rental cycle and making it your own. So some people will face peer pressure or disapproval for their decision to continue to rent. Some people might also not understand your decision to have a mortgage and rent simultaneously.
Is rentvesting for you?
This depends on several factors, including your budget, life stage and lifestyle. However, if you want that Inner West lifestyle but can only afford to buy a property in a regional area, then rentvesting might be a worthwhile option.
Can we help with your Inner West home?
Whether you’re ready to sell or need help to rent your investment property, we have the experience and local knowledge to make your property journey easier.
Looking for help selling your home or renting your investment property? Our team at Belle Property Balmain support homeowners across Balmain, Balmain East, Birchgrove, Rozelle and Lilyfield. Feel free to get in touch for a no-obligation discussion or property appraisal.
