Rentvesting is a strategy for property investing gaining popularity among young and first home buyers who see premium property prices and high rents as a barrier to owning a home.<\/p>\n
Renting where you\u2019d like to live while investing<\/a> where you can afford is actively encouraged by agents but like any investment decision, requires due diligence.<\/p>\n Whether it is choosing the right location for your rentvestment<\/a> property or negotiating the tax landscape, there are myriad factors to consider to ensure the investment is a success.<\/p>\n Australian Property Investor Magazine<\/em> spoke to a range of experts around the country on what it takes to live where you want while having a profitable property investment elsewhere.<\/p>\n These are their top 10 tips on rentvesting.<\/p>\n Research by Well Home Loans, based on SuburbTrends data, lists the nation\u2019s 26 most affordable-to-rent inner and middle suburbs of capital city units and apartments and 30 regional and interstate suburbs in which to buy.<\/p>\n Included on the rental unit list is Brunswick<\/a>, Victoria, where median weekly unit rent in the coveted suburb is listed as $400 and vacancy rates are 2.5 per cent.<\/p>\n Ray White Brunswick director Jamil Allouche<\/p>\n<\/div>\n Ray White Brunswick director Jamil Allouche says apartment rent in Brunswick can be very cheap.<\/p>\n \u201cIf you want to lease out a house in Brunswick you\u2019ll be paying $850-$900 a week, which is unaffordable for most but because there\u2019s a lot of apartments it means their prices haven\u2019t gone through the roof.<\/p>\n \u201cYou can get a two-bed rental in our corridor for $450 a week, which is reasonably cheap considering the quality and number of cafes, shopping options and public transport connections increasing its livability, so renting in Brunswick is very appealing,\u201d he said.<\/p>\n \u201cBuying an apartment is not really going to have the capital growth prospective investors want over the next five years.<\/p>\n \u201cI tell them they\u2019re better off to go and spend $500,000-$600,000 dollars on a place 25 kilometres out of the city, knowing it\u2019s in a good growth corridor, which ultimately, when you sell it in five years, will make a good 35-40 per cent return.<\/p>\n The Well Home Loans research also provides a list of 30 suburbs with promising long-term growth potential.<\/p>\n It shows median house prices in regional areas like Goulburn<\/a> in New South Wales, Brighton<\/a> in Tasmania, and Nambour<\/a> in Queensland, all average about $550,000 to buy, while Sippy Downs<\/a> and Merrimac<\/a> in Queensland, or Mirrabooka<\/a> in NSW average between $755,000 and $770,000.<\/p>\n By comparison, the median house price in South Yarra<\/a>, Victoria, is $2,252,000. Living there as a young couple for $750 per week is doable, buying is not.<\/p>\n AllianceCorp managing director Jason Paetow<\/p>\n<\/div>\n \u201cWhen you purchase a home and take out a home loan, the interest you need to pay is not tax deductible, so for this reason, a lot of people will take out a variable home-loan that requires both principal and interest repayments,\u201d AllianceCorp managing director Jason Paetow said.<\/p>\n \u201cWith investment properties, the interest on the property loan is tax deductible as are many costs associated with maintaining the property, so for this reason, many investment property loans are interest only.<\/p>\n \u201cThis means you need to pay less to the bank each month, putting less pressure on your cash flows.<\/p>\n \u201cIf you have additional funds every month you can add them to an offset facility against your investment loan that can be accessed later to purchase your home or another investment property,\u201d Mr Paetow said.<\/p>\n Neither political party has the urge or nerve to remove negative gearing<\/a> any time soon.<\/p>\n \u201cWith negative gearing any money lost through an investment property may be claimed against the tax paid through employment or other investments, while capital gains tax exemptions generally apply to a principal place of residence and only one property at a time,\u201d Mr Paetow said.<\/p>\n \u201cBecause a property is either a home that you own or one that you reside in, you can achieve exemptions from capital gains tax, which means when it comes time to sell your property, and you\u2019ve achieved significant growth on that property, you won\u2019t need to pay tax on that gain.<\/p>\n \u201cTypically, this is limited to one property (usually the principal place of residence), so it cannot be scaled across your entire property portfolio,\u201d he said.<\/p>\n As interest is a cost incurred through property wealth creation, that then becomes a tax deductible expense.<\/p>\n \u201cBecause of this, many investors opt for an interest only loan on their investment property so they receive maximum tax deductions all the time and you also don\u2019t need to pay tax on money that you withdraw through an equity loan.<\/p>\n \u201cIf your property goes up in value and you don\u2019t want to sell your property, you can actually access a portion of that money through a loan from the bank.<\/p>\n \u201cBy getting access to that portion, because it\u2019s not a gain that you\u2019ve accessed and you already have the mortgage that outweighs the money you\u2019ve been given, you haven\u2019t actually increased your financial stature through that equity loan therefore, it tends to not be tax-deductible.<\/p>\n \u201cThis is a benefit for investors because it means they can take that money and leverage it to purchase more investment properties at a faster rate,\u201d Mr Paetow said.<\/p>\n Australia\u2019s tax regime is one of the most complicated in the world but with the right advice it can be navigated to your advantage<\/a>.<\/p>\n Property Investment Professionals of Australia chair Nicola McDougall<\/p>\n<\/div>\n \u201cIt\u2019s imperative that investors work with a team of experts to ensure they are purchasing a superior property investment in an optimal location as rentvesting often involves purchasing in unfamiliar areas or even interstate,\u201d Property Investment Professionals of Australia (PIPA) chair Nicola McDougall said.<\/p>\n \u201cRents are rising in many markets across the country, however, rentvestors can partially off-set any increase in their own weekly rents with the corresponding rise in rent in their investment properties elsewhere.<\/p>\n \u201cConsider that the median house value in Adelaide is half the price of Sydney\u2019s, with the median unit value more affordable again, as an example.\u201d<\/p>\n The Well Home Loans research lists suburbs nationally where house prices in the regions or interstate roughly equate to the price of units in certain metropolitan suburbs.<\/p>\n In the $500,000-$600,000 price bracket for example, Tasmania features in five of the 10 most affordable suburbs, (Bagdad<\/a>, Brighton<\/a>, Oakdowns<\/a>, Mornington<\/a>, Sorell<\/a>), two from NSW (Goulburn<\/a> and Cringila<\/a>) and Queensland (Nambour<\/a>, Kippa-Ring<\/a>) respectively, and one in Western Australia (Darling Downs<\/a>).<\/p>\n \u201cWhile there is merit in considering property cycles, as they do fluctuate, there is also a risk: too much deliberation and hesitation, which leads to inaction – meaning no property purchase at all,\u201d Mr Paetow said.<\/p>\n\n
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