Rent-vesting: To purchase or to rent.. that is the question?

“Renting where you want to live..
Investing where it’s best”

“Rent-vesting” or Rent-Investing has been a hot topic across the home loan world for the last few years as it has become harder for people to maintain a steady job close to home. With transfers, posting of positions and just general career moves, staying in one location has become nigh impossible to achieve. Thus, we find a lot of people are turning to another option.

What is rent-vesting?

In short, it means you rent in the suburb or place you want to live rather than purchase. The pros and cons of this will vary to suit each and every individual.

Why would you want to do this?

Because some properties worth $2,000,000 plus that are close to beaches and lifestyle have low yields. This means the rent per week is far less than the cost of holding a mortgage per week.

But doesn’t that mean I can’t hang pictures on the wall?

Yes, this will limit what you can do with the place. You can’t drill holes into walls, you can’t paint the walls or put floorboards down or any of that sort of stuff. The home is not yours to make your own – it is a rental.

Just in the same way as a tenant may not alter or make changes to your property without consent, the same rules apply to you in the role of a tenant.

Where would you purchase then?

You might decide that instead of buying a single $2,000,000 property you buy four $500,000 dollar investment properties and spread your portfolio and collectively gain higher rental income / capital growth potential.

Each investment property you hold has other tax implications and benefits which could effectively ‘reduce’ your rent cost per week. This, in conjunction with applying for a variation with your accountant, may mean increased cashflow or a nice lump sum at tax return time.

Are there any other benefits?

You get more freedom!

If you are starting your career, you can easily chop and change where you live to suit your career progression. You can follow opportunities that require you to move. You won’t be pumping money into maintenance of a property that has no positive tax implications. You can test different places to see where you would eventually prefer to set up.

What are the downsides?

If you have a family, it can be much more difficult and, if you are asked to leave by the landlord, this can also be problematic.

Paying rent is seen by many as giving money away to someone when they could just be putting equity into their own property. It requires a mental shift to understand that it can be much more cost effective to rent close to work / lifestyle areas when you factor in the benefits of holding investment properties.

This is a very different thing to just renting and not owning any property.

Who can help me make a decision as to whether this is right for me?

The combination of a team of professionals (i.e. mortgage broker / accountant / lawyer) can help you run some scenarios and show you the pros and cons.

As with any discussion or theory, it can be argued from both sides. So as you are navigating through all the available content regarding topics, such as Rent-vesting, try not to look to be convinced of one way or another but rather, just look to be educated and choose the path that suits your risk appetite, goals and overall strategy.

As always, should you like to have a chat about purchasing a home or investment property, Red Tick Home Loans is always happy to have a chat with you about your options and become part of YOUR team of professionals looking to assist you in attaining your dreams and goals.

Contact Red Tick Home Loans today!

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