In this episode, we’ve got Louis Strange and Jayden Vecchio going through the pros of rentvesting.
In this episode we cover:
- The pros of being able to live where you want
- Your ability to manage your cash flow
Why would you rentvest?
The reason rentvesting is so advantageous is because property is becoming super unaffordable when it comes to living where you want to live – like in Sydney, for example. It’s about lifestyle and the reality is we’re not happy to live 30km out of the city. We want to live where it’s all happening. Here are the reasons we think rentvesting is great:
1.For the lifestyle
People want to live close to the city and avoid the long transport time or the commute. You don’t want to be wasting an hour and a half on public transport.
- Living close to the city – you want that lifestyle.
- The negatives of buying a house are based around the lifestyle – longer commutes are definitely a negative.
2. Getting into the market quicker
To get into the market, you need a deposit.
For example, in Sydney, the average property will set you back $1M dollars. To enter the market with a deposit on a place like that, you’ll need at least a few hundred thousand dollars, which most people don’t have.
Instead, you can utilise whatever deposit money you have to buy further out, then rent that to someone else and use that money to surplus your cash flow.
3. Select where you want to invest!
If you want to live in the big smoke and buy there, you’re forced to buy at the current market price. So instead, through rentvesting, you will be able to watch the rates and buy at the right time.
The main point: With rentvesting, you don’t need to buy where you want to live. You can invest in outer suburbs or different areas to give you more choice.
If you have a house that you’re living in and decide that you want to travel or move to a new city, you need to sell it. When you rent, you can just wait until your lease runs out instead of having mortgage worries. With rentvesting, you’ll have a property manager who will take care of your investment property for you, so you have complete flexibility.
Also, if you don’t like living in an area and you only figure it out once you move in, it’s going to be a costly exercise when you take into account agent fees and stamp duty.
The flexibility leads on to additional savings and you have the ability to control your cash flow. If you’re locked into a mortgage and the economy drops, it affects interest rates too. If you’ve only accounted for current interest rates, you could get stuck in a sticky situation later on.
The major difference between an owner-occupied (non-deductable debt) and investment property are the tax benefits:
- Additional cashflow,
- Investment properties only pay the interest back,
- Investment properties you can claim tax deduction on interest repayments,
- Type of repayments you make.
5. Being able to diversify
If you’ve got a home, you want to try and pay it off as quick as you can. But if you’ve got an investment property you can make a minimum repayment on your loan and focus on other things.
In reality, when you’re just in one investment class, you might do well in the short term but not the long term. There are cheap investments beyond property. If your whole aspect around building wealth is just around property, that is poor diversification because it’s in the same area (property).
If your whole aspect around building wealth is property focus. Ie. Like buying four houses on one street, what if a highway was added next to that street? You’ve got all of your investments there so it’s an additional risk you’re taking.
Lesson: Diversify your investments them in different geographical locations, different asset classes (houses, units, town houses) or different classifications (shares, property).
- Major benefits of rentvesting are lifestyle aspects, you can live in the high demand areas and not pay the price.
- You can enter the property market sooner with a smaller deposit.
- You have more flexibility to move, travel or get out of the area if you don’t like it.
- Your ability to save – building wealth and getting tax benefits.
The Rentvesting Podcast, available on iTunes, was created by Red & Co’s Jayden Vecchio and expert financial planner Louis Strange. Together, Jayden and Louis unpack the facts behind the property market, explain what’s really going on & where the market is heading. They believe in challenging the status quo and want to get out there to educate absolutely anyone looking to enter the property market.