Rentvesting offers an effective way for new home owners to get their foot on the property ladder while still living in their suburb of choice, plus it creates opportunities for savvy property managers to get two bites of the cherry.
More Australians are expected to move home in 2022, partly driven by low-interest rates and COVID-inspired lifestyle changes. With this will come increasing interest in rentvesting, allowing people to enjoy a better lifestyle by living in areas seemingly beyond their reach.
Traditional property investment strategies typically require making lifestyle compromises based on where you can afford to buy. Living in your suburb of choice often seems out of reach. Rentvesting takes a different approach – buying an investment property in a suburb you can afford, then using this investment to help you pay the rent in an area where you actually want to live.
In other words, rentvesting lets property investors enjoy the best of both worlds. The two properties could be on opposite sides of town or opposite sides of the country, but you’ll want to look for an investment property with good rental yields and capital growth potential.
Rentvesting can work when the property is positively geared or negatively geared. Being positively geared means that the interest cost on the loan is less than the incoming rental income; the difference can be used to pay for your rental or any other expense. A negatively geared property is when your rental income is less than your interest costs and property expenses. The difference (loss) can be offset against other income, providing tax savings.
There are several advantages to rentvesting. As housing affordability continues to be a challenge, rentvesting makes it easier to break into the market.
The flexibility of renting will also appeal to those with the travel bug, looking to spread their wings as the borders reopen.
Of course, there are also downsides to rentvesting, so you need to weigh up your options carefully.
For starters, you could lose access to first home owner grants. Investment loans tend to have higher interest rates, plus you also need to consider capital gains tax. Keep in mind, if you buy a property and live in it for six to 12 months before renting it out, you don’t pay any capital gains tax on the growth in that investment for six years.
There are also the frustrations of renting to consider, such as the inability to keep pets, put a nail in the wall or quickly make repairs. Plus, there’s the insecurity of knowing your lease might not be renewed. You need to be comfortable with the fact that the landlord may ask you to move out, drag their feet on property maintenance or knock back your requests for cosmetic changes.
So what does rentvesting mean for property managers? It offers you the opportunity to forge stronger relationships with lucrative long-term clients, who are looking for assistance with being both rentees and renters.
As a property manager, this provides a reliable dual income stream. It also lets you explore new business and marketing opportunities, such as packaging rentvesting up as a complete service. You can help them manage their property investment strategy, find their right properties and navigate the complexities of being both a landlord and a tenant. All while helping you source high-quality tenants.
This is where proptechs like Sorted Services can help, streamlining processes to help property managers scale by efficiently onboarding and managing more rentvesters with fewer hassles.
As the property market heats up in 2022 and more investors look to rentvesting, smart property managers should already be developing a rentvesting management strategy so they can also enjoy the best of both worlds.
Eric Yilmaz is the chief technology officer at Sorted Services.