Rentvesting – a new term commonly used in the real estate world, but what does it actually mean?
Founded on the mantra live where you want to and buy where you can afford, rentvesting sees buyers rent/lease a property in a location where all their lifestyle wants and needs are answered but which is often outside of their purchasing budget. Whilst, they buy an investment property in a suburb they can afford. Becoming a growing trend across Australia, rentvesting is challenging traditional thinking about home ownership.
Rentvesting is a way for people to break into the property market, without sacrificing their lifestyle. With rentvesting, investors can get the best of both worlds because they can afford to rent where they want to live and put their “spare” funds to work by buying elsewhere and renting that property out.
If it’s too expensive for someone to buy where they want to live, they have the option of renting through rentvesting. There are numerous reasons you may want to live in a particular area; i.e., better schools, a bigger house, or proximity to lifestyle amenities such as restaurants and cafes.
Unlike when you own your own home, any issues with a rental property are ultimately the landlord’s responsibility and maintenance costs comes out of their pocket.
As a renter, you have the option every year to renew your lease or move to another home. As your lifestyle wants and needs change, you don’t have to worry about selling your home to relocate to a home which better suits you.
Loss of capital gains tax exemptions
There are some negative tax consequences of rentvesting. If you own the house that you live in, you don’t have to pay capital gains tax however if you sell your investment property, you are liable to pay tax on the profit you make.
Not being able to add your personal touch
Often when you are renting a property you are unable to make any substantial changes you may wish to make, unlike if you owned the home. Any changes made by the rentvestors need to be approved by the landlord.
As a renter, the landlord has rights and control over the property, which can create uncertainty for tenants – i.e., if the owner decides to sell the property or increase the rent.