Rentvesting is a property investment strategy where you rent a home for your personal use in a location you prefer, while simultaneously owning one or more investment properties in different areas that offer better rental yields or capital growth potential. This strategy appeals to many Australians who desire both flexibility in their living arrangements and the benefits of property investment.
Under this strategy, you may opt to rent in a vibrant urban area where purchase prices are prohibitive, while investing in more affordable suburbs or regional areas with promising market growth. The primary appeal is that it allows you to maintain a lifestyle in a desirable location without the financial burden of buying there.
A common misconception is that rentvesting is only for those who can't afford to buy in their preferred living area. However, many choose rentvesting to maximise their investment returns by directing their purchasing power to markets with better growth potential.
To see how this plays out, consider a practical example. Imagine you are interested in living in Sydney's Eastern Suburbs, where the median house price exceeds $1.5 million. Instead, you rent a two-bedroom apartment for $800 per week. Meanwhile, you purchase an investment property in Newcastle for $600,000, which provides a rental income of $550 per week. Assuming a 37% marginal tax rate, the rental income can significantly offset the costs associated with the loan and property maintenance, while you enjoy the lifestyle benefits of living in Sydney.
In our experience reviewing thousands of properties across Australia, rentvesting often appeals to younger investors and those looking to diversify their portfolios. We frequently observe that rentvestors often overlook the importance of location for their investment properties, focusing too much on rental yields without considering long-term capital growth. Another pattern is underestimating the costs associated with property management and maintenance for their investment properties.
The answer can differ depending on your situation. If you own a property purchased before 9 May 2017, you may have different depreciation entitlements under Division 40. Additionally, the strategy might not be suitable for those planning to start a family soon or desiring stability in their living arrangements. Commercial properties are also an option for rentvestors, offering different tax implications and potential returns.
Given the complexities involved, it's crucial to consult with a Chartered Quantity Surveyor and a tax accountant. They can help you understand the tax implications, depreciation benefits, and financial feasibility of a rentvesting strategy tailored to your circumstances.