The Australian property market has seen soaring prices in recent years, making it increasingly challenging for young professionals to take their first step onto the property ladder. However, a unique strategy is emerging as a viable path to homeownership: rentvesting. In fact, savvy investors have been doing this for a long time so it’s great to see this approach becoming more popular.
Rentvesting involves renting in the location you want to live while investing in property in more affordable areas. This approach allows you to grow your wealth through property investment without giving up your lifestyle. In this post, we will explore the concept of rentvesting and delve into creative ways to build equity and achieve your homeownership dreams.
What is Rentvesting?
Rentvesting has gained popularity among young, middle to high-income earners who may not be able to afford to buy property in the suburbs they desire to live in. Instead of committing to an expensive mortgage in a prime location, rentvesters choose to rent in their preferred area while investing in more affordable suburbs with high potential for capital growth.
The primary goal of rentvesting is to build wealth and secure your financial future while enjoying the lifestyle you desire. This approach allows you to diversify your property portfolio and benefit from rental income and potential capital appreciation.
Benefits of Rentvesting
✅ Financial Flexibility: Rentvesting provides financial flexibility. You’re not tied to a mortgage, and you can allocate your funds for investments elsewhere.
✅ Lifestyle Choices: You can live in your dream location, even if property prices are out of reach for purchase.
✅ Diversification: Rentvesting allows you to diversify your property portfolio by investing in different types of properties or locations.
✅ Tax Benefits: Rental income from your investment properties is generally tax-deductible, reducing your overall tax liability.
✅ Long-Term Wealth Creation: Over time, your investment properties can appreciate in value, creating long-term wealth and equity.
7 Creative Ways to Build Equity While Rentvesting
➡ 1. Choose High-Growth Areas
When rentvesting, selecting the right suburbs is crucial. Look for areas with a proven history of capital growth. Research market trends, upcoming infrastructure projects, and economic developments. Suburbs with strong employment opportunities, good schools, and public transport tend to perform well. Investing in high-growth areas ensures that your properties appreciate in value, ultimately building equity. Speak with a broker and/or buyers agent to get the inside scoop on upcoming opportunities.
➡ 2. Renovate for Profit
Renovating an investment property can be a rewarding way to increase its value. Look for properties that require cosmetic updates, such as a fresh coat of paint, new flooring, or a modern kitchen. Renovations not only enhance your property’s appeal but can also increase its rental income. Consider DIY renovations to save costs, but ensure you have the necessary skills or hire professionals if needed.
➡ 3. Subdivide and Develop
In some cases, properties with large land parcels offer subdivision and development opportunities. Subdividing land and building multiple dwellings can significantly increase your property’s value. However, this strategy requires careful planning, compliance with local zoning regulations, and often substantial financial resources.
➡ 4. Lease Out a Room
If you’re renting a property in a high-demand area, consider leasing out a spare room. Platforms like Airbnb make it easy to rent rooms or your entire property for short-term stays. The additional income can help cover your rent or mortgage costs, accelerating your wealth-building process.
➡ 5. Positive Gearing
Invest in properties that are positively geared, meaning the rental income exceeds your expenses, including mortgage payments, maintenance, and management fees. Positive gearing generates additional income that you can reinvest to acquire more properties, further building your equity.
➡ 6. Regular Property Valuations
Regular property valuations help you keep track of your investment’s growth. If you discover your property has significantly appreciated in value, you might consider refinancing to access the increased equity. This can provide funds for further property acquisitions.
Risks to Consider
While rentvesting offers significant benefits, it’s essential to be aware of potential risks:
✅Market Fluctuations: Property markets can be cyclical, and values may not always appreciate as expected.
✅Interest Rate Changes: A rise in interest rates can affect your mortgage repayments and cash flow.
✅Property Management: Managing investment properties can be time-consuming, so consider hiring a property manager.
✅Property Vacancy: Periods of vacancy can impact rental income and cash flow.
Is rentvesting right for you?
Rentvesting has emerged as a creative and practical way for young, middle to high-income earners in Australia to build wealth while enjoying their preferred lifestyle. By investing in properties with potential for capital growth, renovating for profit, or generating rental income through various means, you can effectively build equity and work towards homeownership.
However, it’s essential to conduct thorough research, monitor property markets, and be prepared for potential risks. As you navigate the rentvesting journey, partnering with a knowledgeable mortgage broker or financial advisor can help you make informed decisions and achieve your property ownership dreams while maintaining your desired lifestyle. Reach out to our team today to start the conversation!