How to decide whether rentvesting is the strategy for you

Rentvesting, or the act of investing in property while living in your desired suburb, has surged in popularity in recent years.

This is due to the fact that it allows property investment to occur without the sacrifice of an individual’s lifestyle. For those considering whether or not they’d like to pursue this investment strategy, The Property Mentors has provided some factors that need consideration before embarking on the rentvesting journey.

The first is what your plan is. As with every investment strategy, having a clearly defined plan is paramount for the success of your portfolio as “failing to plan is planning to fail”. Considered and detailed planning on a number of things related to your rentvesting activity — including how and when your financial goals will be achieved — goes a long way to ensuring the success of your endeavours.

Moreover, the group recommends looking into the size of the deposit you can afford, firstly to see if you can afford to purchase in the area you live in, and then, if that isn’t the case, calculate what regions you can buy property in, as deposit size directly correlates with purchasing ability.

This ties into their next consideration for prospective rentvesters — do you know your borrowing capacity? Even with a large deposit, it is advised to analyse your income and deduce whether or not your earnings will allow you to borrow the remaining funds to either purchase in your preferred suburb — if applicable — or purchase your desired investment property.

They recommend always working with a reliable and informative mortgage broker in order to work out your best option.

The Property Mentors advises potential rentvesters to think ahead to where they would like to be a decade from now, as not being tied down to a mortgage provides you with greater freedom for movement in the future, a benefit of the rentvesting lifestyle.

The final and largest consideration offered up by the investment group is calculating how much tax you would like to pay, as the taxation treatment of a principal place of residence (PPR) compared to an investment property is very different.

The loan on your PPR is considered non-tax-deductible debt. It can be considered neutral debt because, even though it isn’t making you any money, it is helping build value by saving on rent and gaining capital value. But this comes at the cost of not being able to take advantage of any of the depreciation or tax benefits that come with an investment property.

Whereas investment loans are considered good debt as they use the money to make money. Being on a good income and having a negatively geared investment property may cause a reduction in tax owing at the conclusion of each financial year.

The Property Mentors concluded that it is crucial to consider financial and emotional factors before undertaking a rentvesting approach to property investment.

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