Rentvesting. Good or bad?

The term “rentvestor” refers to an individual who lives in a rented property but also owns an investment property elsewhere, so they are effectively a renter and an investor at the same time. Rentvesting has become very popular in the last few years; rentvestors now make up 8% of first-home buyers nationally according to a report by the Reserve Bank of Australia.

But is it all it’s cracked up to be? Here we explore the pros and cons of rentvesting.

The Good

Rentvesting allows you to live where you want while someone else pays off your mortgage. If the rental income you are receiving from the investment property exceeds your mortgage payments, it can provide additional income which can then be used to meet other expenses or re-invested.

Rentvestors can also take advantage of negative gearing, meaning if you charge less rent than what you are making in mortgage repayments, the net loss can be used as a tax deduction. There are other tax benefits in rentvesting, including the ability to claim on expenses related to the property such as insurance, repairs and maintenance, borrowing fees and agent commissions.

Rentvesting is a great option for the first home buyer, as it allows them to get a foot on the property market ladder and have assistance in paying off the mortgage via rental income. It is common for rentvestors to purchase property in a location they may wish to live in the future, with a view of making the property their own home some time down the track.

Rentvesting allows you to be more flexible as to where you live. For example if you have a job that requires you to move a lot, it is easier to do this if you are renting a property.

The Bad

Rentvestors miss out on the First Home Owners Grant (FHOG). The FHOG is only available to owner-occupied first-time home buyers. You must live in the home you buy for at least 6 months in the first year of owning the property in order to receive the FHOG in NSW. This legislation varies from state to state. If a rentvestor has not lived in the house for a minimum of 12 months, they will be eligible to pay capital gains tax on the property if they decide to sell.

Renting out a property is not always an easy road. You run the risk of finding bad tenants, who could cause costly damage to your home, or you could have the problem of no tenants at all. If you are unable to rent the property for any length of time this can become a major financial burden. You will also incur extra fees an owner occupier would not encounter such as landlord insurance and agent’s fees. If you decide not to use an agent, you must be prepared to invest extra time and energy required to manage the property and organise and manage potential repairs yourself. You also must be aware of your rights and responsibilities as a landlord and the rights and responsibilities of your tenants.

If you are considering rentvesting, it is important to consider all the pros and cons and how they relate to your particular financial situation. Like any major decision, it is beneficial to seek the advice of an expert. Hunter Lending Solutions are experienced mortgage brokers who will be able to advise you and find the best solution for your requirements.

Talk to us today.