The Pros and Cons of Rentvesting

By Joshua Chadwick March 11th

A popular growing trend that has seen a great rise in recent years has been dubbed ‘rentvesting’, a clever play on the words renting and investing.

Rentvesting is a real estate investment strategy, where individual/s will rent a property to live in that suits their lifestyle, while they still own an investment property in an area they can afford and rent it out, providing steady rental yield.

This strategy has seen a rise recently in Australia, due to the property prices skyrocketing in inner-city areas, and is becoming increasing popular amongst the younger Australian demographics.

However, much like with any other strategy, it has its own pros and cons, which will need its own extensive research before deciding if rentvesting is right for you.

Therefore, it’s time to dive right in and weigh up the pros and cons of rentvesting and see if you’re ready to be a ‘rentvestor’ in your own right.

Considering Rentvesting

When scratching the surface of rentvesting at first, it will more than likely confuse the everyday individual. After all, why would somebody wish to pay off both a mortgage and rent at the same time?

In theory, it might seem simpler to save up and just buy a home, but unfortunately that is not a reality for many. When it comes to the property market in 2021, there is no right answer, as rentvesting can be a great way to get the best of both worlds on the property ladder.

For example, if you’re looking to buy a property but can’t seem to find that dream home in your price range, you can start to look towards cheaper properties and then rent the home you want to live in while renting out the new property you just invested in.

Being both a tenant and landlord may seem like a lot to manage, so we’re here to help guide your decision on whether rentvesting is for you with a list of pros and cons. 

The Pros

There’s plenty of upside when it comes to rentvesting. For starters, you can earn a profit from living in a rental property while renting out your own property, setting yourself up to go for that aforementioned dream home with some steady cash flow.

This cash flow from rental income, assisted with repayments, can be used to pay down the mortgage repayments on the investment property and even pay your own home rental costs to go with it.

You could even receive more capital gains through this property, as the investment property could increase in value down the road with the interest rate, allowing you the chance to profit further through selling.

Depending on the place you’ve decided to live in, you could end up spending the same as a renter as you would if you were living in a home you owned. You would also still have the freedom of where you want to live, as you are not as limited to where you can afford to buy when you’re a Rentvestor. 

When you’re the tenant, you’ll also have less worry when it comes to maintenance costs in the home, as you’ll likely have to stress less when it comes to damage in the home after wear and tear (to check what classifies under wear and tear, check out our blog here.

There are also potential tax benefits that you could claim through tax deductions in investment property expenses. Numerous instances can include the rental costs like advertising and insurance, the interest charged for loans and depreciation costs (For information on available claims, check out the Australian Tax Office here.

The Cons

While rentvesting has plenty of upside, it’s not all sunshine and rainbows on the other side. As mentioned, with every investment strategy there is some downside that comes with it.

For starters, your living space will be less secure when living in a rental, as there are plenty of issues that may arise that are out of your control. For instance, you may have to leave the premises if the owner wants the property vacated or the rent could go up over time hindering your profit margin. There are also inspections you will have to be mindful for.

The costs that go into owning the home and renting it out can be a bit too much to handle at times. As a landlord, you’ll have to cover the cost for maintenance even though you dodged that bullet with your rental. On top of that, you may also have to pay fees to a leasing agent you’re working through.

This also ties into the earlier capital gains possibility, where your investment property could increase in value and bump up the selling price. The property could, however, flip the other way and decrease in value, forcing you to sell at a loss.

Tax benefits can be enticing, but there are also capital growth liabilities, as you’ll have to bear the brunt of capital gains tax if you end up selling your investment property. This is explained by the ATO here, which helps clarify payment of CGT on owner-occupied properties.

You’ll also be missing out on the First Home Owners Grant, which is available for specific first home buyers who will be occupying the property for at least the first year. As you are rentvesting, you will not be living in the property, rendering your chances for the grant null and void.

Ultimately, the decision to rentvest should depend on your financial situation and the market at the time. Rentvesting works best when you can spot the difference between renting and buying in the area and assessing costs from there.

Investing strategies can be hit and miss, so it’s recommended a potential property investor receives financial advice and general information about investing before taking a plunge into real estate investing.

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Joshua Chadwick

Joshua Chadwick



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