Rentvesting is an increasingly favoured approach to homeownership, in which individuals lease a property in their desired location while also investing in a more affordable property elsewhere.
Rentvesting is popular is because you can use the income from your investment property that you purchased as an investment to pay for your rent and live where you want.
In the capital cities, there’s a significant price gap between the cost to buy and the cost to rent, particularly in Sydney and Melbourne. This makes property ownership not within reach for many, especially if you want to enjoy city life. Rentvesting is a great alternative option for homebuyers to get a step in the property market by purchasing a property in lower-cost areas without giving up the the luxuries of city life.
Rentvesting gives you the best of both worlds. You can buy an investment property and find a tenant to cover your mortgage repayment costs renting the property where you live. You can also use the income to cover your rental costs.
Investing in property offers a concrete, tangible asset, distinguishing it significantly from stock investments. In contrast, when you buy shares in a company, you are essentially acquiring a stake in that specific business. Another noteworthy contrast lies in liquidity; stocks tend to be more liquid assets compared to real estate. The process of buying and selling stocks is generally more straightforward and simple than selling realestate.
Rentvesting gives you the best of both worlds. You can buy an investment property and find a tenant to cover your mortgage repayment costs renting the property where you live. You can also use the income to cover your rental costs.
A significant difference between property investment and stock market investment lies in the initial capital required. Real estate often demands a substantially larger initial investment, particularly when aiming to purchase property in high-priced areas.
Additionally, with rentvesting, you need to consider payment for your home loan, ongoing mortgage repayments, as well as additional expenses related to acquiring real estate, such as stamp duty. and loan-related charges.
However, Rentvesting does provide a positive passive income stream and potential for capital gains.
When you have an investment property, you are able to generate rental income. This is especially easy today with high rental demand, however, if you are unable to generate enough for mortgage repayments you may generate tax reductions for your loss, this is called negative gearing. Rentvesting also provides some other tax reductions such as depreciation, agent fees, council rates and loan interest, Additionally the property is likely to appreciate in value over time.
Property management fees usually range between 5% to 12% of your weekly rent. This varies greatly between states. Some typical fees you can expect from a property manager include the letting fee to cover the property manager finding a new tenant for your property, along with a management fee to cover daily activities required to manage the lease.
To estimate the potential rental income for your investment property, look at the rental rates of comparable properties in the vicinity. One crucial factor to take into account is the property’s yield, a metric you can calculate by dividing the annual rental income by the property’s purchase price and then multiplying by 100. For instance, if you bought a property for $500,000 and are leasing it for $500 per week, totaling $26,000 annually, the gross yield would amount to 5.2% per year.
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