It can feel like the odds are stacked against you as a first home buyer. Because while ultra-low interest rates mean it’s never been cheaper to service a mortgage, property prices are seemingly skyrocketing ever upwards, making it harder to save a deposit.
So buying the type of property you want to live in, in the area where you want to live, can seem like an elusive dream.
But it might not be.
That’s because there could be a way for you to live in your favourite suburb while still getting a foothold in the market.
It’s called rentvesting. But how does it work? And is rentvesting really a way of having your cake and eating it too? Let’s find out.
What is rentvesting?
Rentvesting is when you rent in an area you want to live, while buying in an area that suits your budget.
In theory, this gives you the best of both worlds. So you get to maintain your current lifestyle while owning an investment property that will hopefully increase in value over the long term. As an added bonus, if you rent out the property, the income you receive can be used to cover your mortgage repayments.
Maybe. But rentvesting isn’t the right strategy for every first home buyer. That’s because it comes with both pros and cons attached.
The pros of rentvesting
- Getting to live the life you want – while still climbing the property ladder
- Entering the property market faster – as a cheaper property means a smaller deposit
- Generating wealth for the future – you might be able to leverage equity in the property to build a portfolio
- Potentially saving on tax – you may be able to claim interest payments on your investment property loan and other expenses associated with the property as tax deductions
- Easing your property cost burden – the rental income on the investment property can be put towards the mortgage
The cons of rentvesting
- Straining your budget – you will have to pay both rent and homeownership costs if your investment property is vacant for an extended period
- Having to rent yourself – so you could be asked to move out at any time
- Losing access to first homeowner grants – as you often have to be an owner-occupier to be eligible
- Paying capital gains tax – if you sell your investment property at a profit
- Being responsible for repairs, maintenance or any other unexpected costs associated with the investment property – that’s why it’s a good idea to build an emergency fund if you do decide to rentvest
Crunch your numbers
Still tempted? As with any property purchase, you need to make sure rentvesting makes financial sense. So be sure to crunch your numbers before taking the plunge. We can help with this too.
First home buyer unsure about your options? Just Imagine Finance can give you the expert advice you need to make an informed decision. Contact Catherine on 0414 673 359 or firstname.lastname@example.org