Property Investment Through Rentvesting: Your Family Home is Not an Asset

For many Australians, owning a family home is seen as a symbol of financial success and stability. However, while owning a home can provide a sense of security and comfort, it may not always be the best investment strategy. Here are some reasons why:

1. Capital tied up: Owning a family home can tie up a significant portion of your capital, which limits your ability to invest in other opportunities. This can reduce your overall investment diversification and limit your potential for long-term growth. Additionally, if you need to access your capital for emergencies or other opportunities, selling your home can take time and may incur significant transaction costs.
2. Monthly costs: While owning a home may provide a sense of stability, it can also come with significant monthly costs. These costs include mortgage payments, property taxes, insurance, maintenance, and repairs. These expenses can be a drain on your cash flow and reduce the amount of money you have available for other investments or savings goals.
3. No tax deductions: Unlike investment properties or other assets, there are typically no tax deductions available for expenses related to an owner-occupied home. This means that you cannot deduct your mortgage interest, property taxes, or other expenses from your taxable income. This can limit your ability to reduce your tax liability and may result in a higher overall tax burden.
4. Lack of freedom: Owning a family home can limit your ability to move around and travel. If you want to move to a different location or travel for extended periods of time, owning a home can be a significant burden. This is especially true if you still have a mortgage on the property, which can make it difficult to sell or rent out the property while you are away.

While owning a family home may provide a sense of stability and security, it may not always be the best investment strategy. By tying up a significant portion of your capital and incurring significant monthly costs, you may be limiting your overall investment potential. By investing your capital in other assets that provide ongoing income and tax benefits, you can achieve greater diversification and potentially higher returns.

So, what should you do instead?

Rentvesting

Rentvesting is an alternative way of living that has gained popularity in recent years, particularly among younger Australians. The concept of rentvesting involves renting a home to live in while investing in property elsewhere.

Here’s how it works: instead of buying a property to live in, rentvestors rent a property in their preferred location while using their savings to invest in property elsewhere, such as in regional areas or emerging markets. By doing so, they can build their property portfolio and potentially benefit from capital growth and rental income, without having to sacrifice their lifestyle or living in a location that doesn’t suit their needs.

There are several benefits to rentvesting. Firstly, it allows you to have more flexibility in your living arrangements. Rentvestors can rent in areas with high rental demand or in their preferred location without being tied down to a mortgage. This is particularly beneficial for those who are still exploring their career opportunities or those who want to have more flexibility in their living arrangements.

Rentvesting can allow you to build a property portfolio and potentially benefit from capital growth and rental income. By investing in property in emerging markets or regional areas, rentvestors can potentially achieve higher returns on their investment than if they had bought a property to live in. Rentvesting can also provide tax benefits. Rentvestors are able to claim tax deductions on their investment property, such as interest expenses, property management fees, and repairs and maintenance costs. This can reduce their overall tax liability and potentially increase their cashflow.

In my experience, purchasing an owner-occupied property in a desired location is usually not a wise investment decision. This is largely due to the fact that, in many cases, the only affordable options are apartments or townhouses. These types of properties typically have higher expenses and limited potential for capital appreciation.

Rentvesting may not be suitable for everyone. Those who prioritize the security and stability of home ownership may not find rentvesting appealing.

In conclusion, rentvesting is an alternative way of living that can provide greater flexibility, potential investment returns, and tax benefits. However, it requires careful consideration and a higher level of financial discipline and expertise. As always, if you want to learn more about this, feel free to reach out and we can have a consultation without obligation about your situation.