Is rentvesting the solution for single income families?

Rentvesting foe single parents

You may have heard of the new trend coined rentvesting for Australian millennials trying to get onto the property ladder. Essentially, rentvesting involves buying an investment property in a location that fits within your budget while renting in an area you can’t afford to purchase in. However, rentvesting doesn’t have to just be for millennials.

Typically, young professionals choose to rentvest so that they can live in the inner suburbs while still owning a property elsewhere, making travelling into the CBD for work easier. However, even if you don’t work in a CBD you might want to live in a certain area for its community or for the better schools on offer.

You don’t have to give up on home ownership just because your single income doesn’t allow you to buy a home where you want to live. Buying property is a great long-term investment option that has historically been secure and shown steady growth. Rentvesting might be the home ownership solution perfect for your family.

Single mum owning a home

THE PROS AND CONS OF RENTVESTING

What are the pros of rentvesting?

Of course, one of the biggest benefits of rentvesting is the ability to explore suburbs all over Australia. For instance, if you live in New South Wales, finding an investment grade property could cost a fortune. However, there are many growth suburbs in other areas of Australia, such as in Brisbane, that would be more affordable.

Furthermore, with a cheaper property, not only will repayments be reduced, you won’t need to save as much for the deposit. If you do your research, you’ll be able to find a property in an area with a high rental yield. That way, your rental income could potentially cover your mortgage repayments and expenses.

However, even in the case that your mortgage repayments and expenses aren’t covered by your rental income, the tax incentives for properties in Australia allow you to benefit from negative gearing. Since you would be a landlord rather than an owner occupier, you can claim interest payments, repairs, property management fees and more as tax deductions.

You’d still be paying rent but you’d also be building equity. You can then use this equity to purchase further investments or to buy a property in your dream location down the line. Of course, you’d also be building equity if you were an owner occupier but this would restrict your options and ability to live the lifestyle you want with your family.

Single mum balancing lifestyle,renting and investing

What are the cons of rentvesting?

Unsurprisingly, with every road you could take, there are cons involved. Just like if you were to be an owner occupier, you still need to save for a 10-20% deposit and pay associated costs such as stamp duty, LMI, legal fees and bank fees. If you’re a first home buyer, you won’t be able to use the First Home Owner Grant if you later decide to buy your own home.

You’ll also be accountable for maintenance costs and bills for your property. As mentioned before, many of these costs are tax deductible. However, being a landlord can also take up a lot of your time. It might be worthwhile to consider hiring a property manager in these cases since rentvesting should make your life easier not harder.

Even though you have the freedom to move more often with renting, it also means you can’t get attached to a certain home. With leases, you can never be certain how long you can stay in one place for. Similarly, with not owning the property you live in, you can’t make improvements or changes without going through your landlord first.

IS RENTVESTING A VIABLE OPTION FOR YOUR FAMILY?

Many singles feel as though they’ve been priced out of the housing market, especially in popular areas. Maybe you’ve been in a certain suburb all your life and don’t want to force your children to move away just to afford a property. Rentvesting offers a real solution for families who would struggle to afford a property in the area they want to live in.

However, if you’re considering rentvesting, you should also consider whether you’re financially ready to buy a property at all, even if it were cheaper than buying in your desired area. Buying a property is a long-term investment and you’ll need to be able to afford mortgage repayments for many years to come.

James Pointon

James Pointon

James Pointon is a Commercial Manager at OpenAgent.com.au, an online agent comparison website helping Australians to sell, buy and own property.

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