You may have heard the term rent-vesting and be wondering what it is?
Simply put, it is when you invest in a property in a location where they have no intention of living, and allowing the rent to start to pay off the mortgage loan and create equity in your property. At the same time, you are living in a rental property elsewhere, in a suburb you might not be able to afford to buy in now. Eventually, you will be able to put the equity from the home you currently own, as well as the income stream from the rent, into purchasing in your preferred location.
Why Would Someone Do That?!
Well, it’s due to rising housing price in Australia. Young people still want to enter the housing market but without the financial ability to afford a house in an area where they want to live, they are able to enter the market in an area they can afford, while living in a rental location where they eventually aspire to buy.
Obviously, with this method there are going to be both pros and cons to your living situation. Here is a quick list for those who would like to investigate the concept further:
You choose where you want to live
Because you are renting, you get to choose where you live and for how long. This gives you flexibility and allows you to either upgrade or downgrade in rental property if your circumstances change with no stamp duty or legal cost to concern about.
But you still can enter the property market
You are able to enter the property market sooner and at a lower price! You are also able to grow your property portfolio which can be used to generate wealth that you can put towards your dream home.
Interest repayments for your investment property are tax deductible. Meaning you can make some big savings come tax time.
Believe it or not, you save more money!
Having your investment property allows you to utilise the benefits of equity to save even more money, faster.
You don’t own the home you live in
Because you are still renting the house you live in, things can feel a little strange.
And you can’t update your rental property either
Unfortunately, when you rent in Australia you cannot update the property you’re living in. No matter how much better the place would look with the project you have in mind, it’s not yours to change.
Capital Gains Tax
Eventually, you will need to live in the property which you have invested in for a minimum 12 months before you can sell it and reap the benefits. Otherwise, you will pay capital gains tax on the sale.
You miss out on the First Home Owner Grant
Investors will miss out on this grant because it’s only available to owner occupier first home buyers who are buying or building a new home. But perhaps, if you consider investing in new property, you will be eligible for the Off-the-Plan Concession instead.
Eager to discover new strategies to help you break into the property market? Contact KingsCoin today and speak with Managing Director John Higginson. With over 20 years real estate experience, he is available to guide you through property trends.