June 7, 2021

Rentvesting 101

Queensland house prices are booming, which can make things difficult if you’re trying to get into the market.

Rentvesting can offer a way in – but is it worth it?

In February 2021, property analysts CoreLogic reported that house prices in Queensland had experienced their sharpest rise in over 13 years.

Low-interest rates and low levels of housing stock are contributing to the surge. On top of this, interstate migration is at a 20-year high. As we noted earlier this year, many people are moving to places like Toowoomba, which offer good infrastructure along with a great lifestyle. All of this means house prices in the Sunshine State are expected to keep rising throughout 2021.

But what do you do if you’re priced out of the market where you live? Rentvesting could be the answer.

What is rentvesting?

Put simply, rentvesting (a combination of “renting” and “investing”) is when you live in a rental property in your preferred location while buying an investment property in another location.

It’s a trend that’s growing. According to the ABS, up to 340,000 Australians are rentvesting right now.

Why rentvest?

Many people are finding it harder to afford living where they want, yet they’re still keen to get on the property ladder. So they’ll rent in an area they love and buy an investment property in a more affordable area, with the rent they earn contributing to their mortgage repayments.

Rentvesting often suits those who want to live closer to the city centre, where property prices are higher. It can also work for singles and those happy with a less traditional approach to homeownership.

What are the benefits?

  • Flexibility. You can still live where you work, or love, and have the flexibility to move when you want while getting started in the property market.
  • Head not heart. Decisions about buying your own home are often led by the heart; but if you’re buying an investment property it’s easier to make decisions led by the head, and that can mean financially smarter choices.
  • Financial benefits. If the rent from your investment property exceeds your expenses, you’ll generate extra income for yourself. And if your expenses exceed the amount of rent you’re making, you may be able to claim this as a tax deduction. Plus, hopefully, the value of your property will increase during your ownership.

How about the downsides?

  • You’re still renting. You won’t be living in your investment. You’ll still be subject to the downsides of renting where you currently live, such as rent rises, or having to move when the lease ends or the property is sold.
  • No tenants. Your investment property might be vacant for a while, during which time you’ll have to cover costs (such as mortgage repayments or marketing and advertising to find a new tenant). That said, vacancy rates in Toowoomba are super low right now.
  • Deposit. You still need to save for a deposit, though it’ll likely be smaller than you’d need for a property in a more expensive location.
  • The right decision. Choosing an investment property isn’t the same as choosing your own home, so make sure you understand the differences. This is where an experienced agent can prove invaluable.

Getting started

There are a few things to do before you start searching for your investment property. First, consider talking to a mortgage broker and financial advisor or accountant, so you fully understand any tax and financial obligations before making your decision.

When looking at properties, take into account details like location, which can affect your rental return and your ability to attract and retain good tenants. Also think about your goals – are you looking for maximum rental yield, or is capital growth your main objective?

Looking to get on the property ladder? Call our experienced team today.

Article by James O'Donohue

Delivering a premium service experience has been Team Elevate’s primary focus since commencing their real estate journey. James and Shaun create… View profile

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