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Rentvestor’s are investors who secure investment properties but continue to rent themselves.
Sounds crazy right? Why would you buy property but continue to rent yourself? Where does this fit into the Australian dream? The answers may just surprise you.
For a growing segment of hard working Aussies – as high as 1 in 4 first home buyers in WA – rentvesting makes perfect sense. Many first home owners suffer a huge mortgage that wipes out their social life while they barely manage to survive on a diet of baked beans and dog food. But for the smart rentvestor who continues to live at home or boards cheaply with some friends, they can secure investment property that can be almost cost neutral (due to smart financial structuring) while they continue to live life to the full. So how does this work?
Let’s look at the comparative examples of Laura and Toby. Both have full time jobs and are good savers and have put away $50,000 as a deposit on a property (with some help from Mum and Dad). Laura decides to buy a home to live in while Toby builds an investment property and continues to rent with a few mates that costs him $100/wk. They both secure a property for $350,000.
When absolutely all property and ongoing costs are included:
– Toby’s rental property is cash flow neutral – it costs him nothing ongoing to hold! Lets Party!
– Laura’s home costs her over $480+/wk – ouch! Laura’s staple diet will be 2 minute noodles
The major differences are that Toby gets rental income on the property but most importantly all of his loan interest costs, depreciation incentives etc are all tax deductible and he uses a tax variation to get a portion of his sizable tax deduction back every pay to smooth his cash flow.
In most cases the cost of rent will be cheaper than a mortgage to live in a good quality home.
As As LJ Hooker recently observed, ‘…younger buyers may seek out affordable areas in suburban locations for their first foray into property ownership, but choose to live and rent closer to the CBD or their workplace. Conversely, a family may want to enter the property market and purchase an apartment, but that may not be practical for their living needs…’ Or you may look to put tenants into your existing home and rent yourself to reduce costs and improve lifestyle.
So now you have a choice:
– Do you want to burden yourself with a massive mortgage and survive frugally living in your own home?
– Or do you want to continue enjoying life while your investment property looks after itself and builds wealth affordably while you sleep?
Rentvestors can enjoy the best of both worlds – an idea well worth considering….
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