Rent money is dead money – owning your own property is almost always the better financial decision, if you can afford it. However, ‘rentvesting’ – that is, renting where you want to live and investing in a property elsewhere – can be an even better option.
What are the advantages
1. You can live where you want
If you can’t afford to buy where you want to live, you might be able to rent there and still have your money in the property market. Additionally, as rental yields tend to decline when property values increase, you may be able to afford to rent a bigger/better property than you could afford to buy.
2. Better profits
The property you want to live in will not necessarily be a good investment property. You can make your money work harder by buying based purely on investment potential, i.e., a smaller, higher yielding property where capital values are rising.
3. Your property generates income
You are collecting rent to help pay for your investment, and you are ideally achieving capital growth – eventually, your investment should start to sustain itself.
4. Tax deductions
You can’t claim deductions for payments on your principal place of residence, but interest repayments on an investment property are fully tax deductible, which can lead to considerable savings.
5. No entry and exit costs
You lose about 8% of your asset’s value every time you buy and sell; the costs associated with moving while renting are almost negligible in comparison.
6. Where you live is not as permanent
This may be especially appealing for young families, as needs change when children get older – and you may want to trade up or relocate for schools, etc.
7. You can adjust your budget
You can always upgrade or downgrade your rental for a few years depending on your current situation and what you want to spend your money on.
There are a few disadvantages
- It’s always temporary – some people just want the ‘Great Australian Dream’.
- You can’t personalise a rental space.
- There may not be many properties available to rent in the mid to high end of the market.
- It’s hard work moving house, and may mean changes to the familiar life you are used to.
Of course, there are many variables, and you’ll need to do your figures carefully to make sure the numbers stack up. However, as affordability problems continue to affect first home buyers in particular, ‘rentvesting’ is definitely an option worth investigating.