Are you a first-time homebuyer in Australia wondering if you can rent out your property? The answer is yes! In fact, a popular strategy known as “rentvesting” allows first-time homebuyers to purchase an investment property they can afford and continue renting in their desired location. Rentvesting provides several benefits for first-time buyers who want to enter the property market while maintaining their preferred living arrangements.
What is Rentvesting?
Rentvesting is a strategy where first-time homebuyers purchase an investment property within their budget and choose to rent in the location they desire. It offers flexibility and allows individuals to experience the advantages of property ownership while enjoying the convenience of renting in their preferred neighbourhood.
Benefits of Rentvesting for First-Time Homebuyers in Australia
Rentvesting comes with several benefits that can be advantageous for first-time homebuyers:
Lower-cost access to the Market: Rentvesting enables first-time buyers to enter the property market at a more affordable price point. The investment property they purchase is typically more budget-friendly compared to buying their dream home in their desired neighbourhood.
Greater Flexibility in Location: With rentvesting, first-time buyers have the freedom to live in the area they prefer while investing in property elsewhere. This flexibility allows them to adapt to changing circumstances, such as job opportunities that may require relocation.
Investment Opportunities: Rentvesting allows first-time buyers to benefit from the potential growth in the Australian property market. It provides an early entry into the market, enabling buyers to purchase a property with an affordable deposit and a manageable home loan.
Affordability: By rentvesting, first-time buyers can live in a rental property they may not be able to afford to purchase while investing in an affordable property in a different location. This provides a balance between affordability and lifestyle choices.
Reduced Living Expenses: Rentvesting can help first-time buyers reduce their living expenses. Rental income from the investment property can offset the cost of their rent, easing the financial burden.
Tax Benefits: Rentvesting may offer tax benefits, including negative gearing. Negative gearing allows buyers to offset the losses from their investment property against their taxable income, potentially reducing their tax liability.
It’s important to note that rentvesting requires careful consideration and planning. Consulting with a financial advisor can provide valuable insights and guidance before making any decisions.
Impact on Saving for a Future Home Purchase:
Rentvesting can positively and negatively affect first-time buyers’ ability to save for a future home purchase. Here’s a closer look at how rentvesting can influence savings:
Positive Effects
Investment Opportunities: Rentvesting allows first-time buyers to invest in property and benefit from potential growth in the Australian property market. This can help build equity and increase their net worth over time.
Reduced Living Expenses: Rentvesting can lower living expenses as rental income from the investment property helps offset rent costs.
Greater Flexibility in Location: Rentvesting provides the flexibility to live in the desired neighbourhood while investing in property elsewhere, offering more freedom to move compared to being tied to a long-term mortgage.
Negative Effects:
Additional Expenses: Rentvesting requires first-time buyers to manage both their rent and the mortgage payments on their investment property. This financial responsibility can be burdensome and may impact their ability to save for a future home purchase.
Reduced Savings: Rentvesting may limit the amount of money first-time buyers can save for their own homes, as they need to allocate funds for both rent and the investment property mortgage. Saving for a deposit on their dream home can become more challenging.
Risk: Rentvesting carries the risk of finding tenants for the investment property and covering mortgage payments during periods of vacancy. These uncertainties can strain finances and make saving for a future home purchase more difficult.
It’s crucial for first-time buyers to carefully evaluate their financial situation and goals before deciding to reinvest. Seeking advice from a financial advisor can help determine if rentvesting aligns with their specific circumstances and objectives.
