The constant conversation surrounding how hard it is to enter the property market has been getting louder, with first home buyers falling victim to rising property prices making deposits harder to save for. If only there was a way to both own a property and live in a desired area… Wait, there is. It’s called rentvesting, the affordable way to own a first property without having to settle on location or change your lifestyle. 

What is rentvesting and how does it work? 

Rentvesting is when you purchase an investment property in an affordable area, whilst renting a place that’s fitting for your lifestyle but is beyond your budget. For instance, purchasing an investment property in a regional town is much more feasible than Sydney CBD.  

Rentvesting is a great investment strategy for first time investors to get on the property ladder and has become more common as property prices are continuously rising in highly desirable areas like coastal locations and those close to CBDs. 

Rentvesting in practise 

Sam is looking to rentvest in the Greater Sydney Region and he currently lives in a rental apartment in Bondi.  

The location suits his lifestyle, but he can’t afford to buy in this area due to high property prices. He decides to purchase a unit as an investment in Chatswood, where the entry price point is better matched with what he can afford to buy.  

Sam continues to live and pay rent for his Bondi beachside apartment as his property manager finds tenants to rent his investment in Chatswood. The rent the tenant pays helps Sam pay off his mortgage while increasing his equity. 

Why is rentvesting a good first step on the property ladder? 

Rentvesting holds many benefits for investors. It gives investors the opportunity to start building a property portfolio without missing out or waiting for a large enough deposit. 

We can see from previous years that formerly popular cities are no longer preferred for many. From the impact of COVID-19 we have seen that many people are choosing to move further out to regions where homes have more space in them, for things like working and studying from home. 

Rentvesting is usually best suited for those who have the funds to purchase a property, manage the ongoing costs while renting another property for themselves. It’s important to point out certain strategies that help people get on the property ladder are unique to everyone, and one strategy might not be ideal for someone else. 

A big benefit of rentvesting is it allows the owner to take advantage of negative gearing benefits. Negative gearing is when an investment property generates less income than it takes to cover the cost of owning the asset.

This means the fiscal losses incurred from the investment property, like interest repayments and insurances, can be claimed as deductions against total taxable income. This has the flow on effect of reducing taxable income, so less tax is paid.

Can you still claim depreciation while you rentvest? 

Yes, if depreciation is eligible and available it can be claimed to its full potential by rentvestors. 

Property depreciation is one of the biggest tax deductions available to investors. In fact, data from the Australian Taxation Office proves it is the second largest tax deduction available overall, following costly interest repayments. 

Because depreciation is the natural wear and tear of property and assets over time, rentvestors aren’t required to pay any additional expenses to claim it as it’s a ‘non-cash’ deduction. This is different to other deductions like interest repayments and property management fees as the money needs to be spent first in order to claim them.

Property depreciation can potentially boost your after-tax cash flow by thousands in a single year. BMT proves this by consistently delivering a first full financial year depreciation deduction of almost $9,000 for their residential clients. If you would like to learn more about claiming depreciation as a rentvestor contact BMT today on 1300 728 726 or Request a Quote.

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters. 

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