It’s common knowledge that many of today’s young first homebuyers are facing significant affordability barriers in certain inner city property markets.
Of course most are at that age where they’re also on an upward career trajectory in a professional industry, and seeking job advancement opportunities only afforded in and around our major CBD’s.
So how do you overcome the issue of wanting to live near ‘the big smoke’, but not being able to obtain that goal due to impossibly inflated entry-level house prices (unless you earn a six figure annual salary)?
Well, according to increasing anecdotal reports, you become a ‘rentvester’. That is, you rent your ideal property in your dream location, and then travel a little further afield into neighbouring suburbia to start your own investment portfolio.
This is an incredibly sensible compromise and one that more young people are apparently making.
So is it for you? Here are 7 reasons you might just find ‘rentvesting’ could give you the best of both worlds…
- You get to live where you want to.
Generally speaking you’ll always find it’s cheaper to rent accommodation closer in to the city than it is to buy it, because capital growth in desirable postcodes significantly outpaces rental growth, which is anchored by inflationary patterns.
Young people are lured by the café culture and walkability of our inner urban neighbourhoods and increasingly want to move closer to the action. That cute apartment by the bay will cost perhaps $400 a week in rent, but $700 a week to service a mortgage on the asking price!
- You have freedom to move more readily as a renter.
For young people particularly, the sense of freedom in being personally responsible for a maximum twelve-month stint in a property can be liberating.
It means flexibility in climbing the corporate ladder as you can relocate for work, and gives you far more scope to choose how you live, where you live and for how long.
- Your mortgage will be tax deductible.
Unlike homebuyers who end up with a significant non-tax deductible debt, as a rentvester you can claim the interest on all mortgage repayments associated with your investment property each financial year, thereby assisting with cashflow and helping to reduce your personal income tax liability.
You can also claim various expenses associated with the management of your asset base, and depreciation allowances, making property ownership a lot more affordable.
- You can potentially borrow more.
You’ll not only have your salary to demonstrate serviceability of the loan against the investment property acquired, but also the rental income generated by the investment itself. Lenders will take a portion of the projected annual rental income into account when assessing your capacity to repay.
This means you can potentially take on a larger debt than you would if purchasing an owner-occupier home.
- Your home won’t be your biggest investment.
Instead of pouring all of that non-tax deductible money into ‘the home of your dreams’ for the next twenty years, you’ll have far more potential to leverage the growing equity in your investment to diversify into a well-balanced and diverse portfolio with which to secure your future financial freedom. Then…
- You can buy the home of your dreams sooner (and with less debt).
By focusing on property as an investment in the first instance, you’ll be better positioned to study the market, before entering it as an informed, equity-laden homebuyer.
Think of all that invaluable capital growth and market knowledge you can utilise to secure the home of your dreams, with lower personal debt levels and in turn, far less stress and struggle than most first home owners experience.
- Your tenants will help you pay off the property.
While you’re happily paying another property investor’s mortgage and living it up in the home of your own choosing, your tenants will be doing the same, thereby reducing your investment debt.
Ideally, you want to hold negatively geared property investments, without having to pour significant amounts of your own capital into sustaining your asset base each month.
Thankfully this cashflow strategy is relatively simple to structure in our continuing low interest rate environment, with rental yields across many locations becoming stronger as the tenant pool increases.
If you’d like to know how to start out with the best possible investment finance strategy and portfolio in place to help you successfully grow your personal wealth with real estate, why not connect with the experienced team at Trilogy Funding?
We’ll not only assist in establishing optimal structures to augment your cashflow and capital gains, but we can partner with you throughout the journey, providing invaluable experience and insight to guide you to your goals sooner. Click here to contact us today.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).