To rent or to own, that is the question. While it seems evident that owning a property is the best choice, some may argue that they don’t mind paying monthly rent. For instance, renting means no maintenance costs, no real estate taxes, fewer concerns about decreasing property value, and flexibility when deciding where to live.
However, owning a house has its own benefits, such as the ability to make home renovations and customizations, and most importantly, ownership is an excellent long-term investment. That said, did you know that some people do both? wherein they rent and own a house.
This article delves into property investment and rentvesting that property investors should consider.
Pros of Rentvesting
Rentnvesting, a coinage drawn by mixing the words “rent” and “investing”, is a new trend in property ownership. This investment strategy is characterized by clients renting a home in the neighborhood of their choice while purchasing a property or two in a more inexpensive location, usually in rural or regional areas. Rentvestors often purchase houses from the property market at a lower price than in capital cities.
The owner would rent a property in CBDs to enjoy the benefits of urban living while getting extra money from their rental properties. This type of property investment allows owners to gain rental income from their investment properties while staying within the metro.
That said, rentvesting has its pros and cons; read on to know its benefits of rentvesting.
Ability to Live Where You Want
One great thing about renting is that you can live wherever you want. The same goes with rentvesting, only that you have more options for moving into a different city or using one as your investment property.
An Avenue for Wealth Building
Investing in real estate and turning it into rental homes are currently rising. This reason alone is why a lot of people are getting into rentvesting. Due to the huge difference in property prices, people may opt to purchase property in locales that has lower cost and allow people to rent it. Although lower living expense and property costs entails low rental costs, thus low rent money, this can still produce positive cash flow.
Another financial sense in investment property is its continuous capital growth. Property value increases over time. A benefit of investing in real estate is that it puts investors on the property ladder. Property ladder simply means that people are perceived to progress with real estate investment as they continue to purchase more expensive houses.
So if you think stepping into a property ladder might be challenging, especially for first-time property buyers, remember that every successful real estate investor started by buying their first investment property.
Potential Tax Benefits
Your investment property or properties are eligible for a variety of tax incentives. Even the interest you pay on your loan for your investment property is eligible for tax deductions. That said, just make sure to settle all your mortgage repayments on time. The same goes for both the building and any new fixtures and fittings.
Low Maintenance Costs at Your Rental Home
As a tenant, you are often exempt from paying property maintenance fees because your agent will handle all the repair work.
Cons of Rentvesting
Although, the above mentioned benefits may be enough for you to try rentvesting, like all things, it is smart to take note of the disadvantages of rentvesting strategy.
Living where you’re renting might be less secure
Renting means less security in your primary residence. If the owner wants to change tenants or quit, you have no choice but to move. Additionally, your rent can go up.
Capital Gains Tax Liability
As mentioned above, property investing involves stepping up the ladder, including selling purchased property. Remember that if you decide to sell your property, you will be required to file and pay capital gains tax and other buying and selling fees. It is calculated based on the amount the asset appreciated when it was held owned.
Ongoing Home Ownership Costs
You are typically in charge of managing the expenditures associated with repairs to your property as a property owner. Additionally, a leasing firm may also require payment from you.
Potential Capital Loss
Like most businesses and investments, one of the biggest risks in investing in real estate that is still evident in rentvesting is loss of value. Thus, it is better to keep an open mind that this be prevented by applying smart strategies but is not entirely impossible. Thus, one con of rentvesting is that you might have to sell your investment property at a loss if its value declines.
Rentvesting Strategy
One of the great things about rentvesting is that anyone can do it. However, making your savings work for you requires dedication and planning. Here is a 3-step rentvesting plan to get you started:
Save up a deposit
Most people will find this to be the most challenging stage, especially given rising real estate costs. Nevertheless, it is feasible. As a good rule, try to set aside 20% of the property’s value as a deposit. It is advisable to begin with an investment property with a lesser value than if you were buying your own home because 20% can be a significant sum of money.
Find Your First Property
At this point, it is essential to secure professional advice in your property journey. Consider hiring a buyer’s agent, a mortgage broker, and a property manager, as these are the three most crucial specialists.
An agent can assist you in finding a home that fits your budget; while a broker can do the legwork and provide a quick and easy comparison of your lending options; and lastly, property managers can handle the typical tasks of a proprietor to relieve you of the property’s day-to-day management.
Working towards your Second Property
Rentvesting is a property strategy that aims to accelerate your wealth by investing in real estate as soon as possible. Consequently, the next stage is to locate and buy your second property. If everything goes accordingly, there is a good chance you have been able to make money from your investment property.
You may be able to secure the down payment for your next investment property or even your future dream house using the savings and equity in your first rental property.
Paying rent and a mortgage might seem very risky and unusual at first. However, rentvesting makes a lot of sense if you have the necessary funds, did thorough research, and thought through your investment strategies. With proper guidance, you may be well on your way to living the life you want today while making plans for a secure future.
