Although the number of first home buyers have fallen, this doesn’t mean Gen Y are not buying property. Instead, they are using a new tactic called ‘rentvesting’ to get to property ownership sooner.
‘Rentvesting’ is where property buyers who are typically Gen Y buy their first property as an investment property, whilst they continue to rent in an area they want to live, to enjoy the lifestyle benefits of renting.
According to new statistics from ING, 21 per cent of Gen Y’s (18-34 year olds) now own at least one investment property, so there must be something to it.
Although you might feel like investing in property first whilst still paying rent doesn’t make any logical sense, this is one popular tactic being used to overcome the affordability pressures that many Gen Y’s are facing, particularly in Sydney where property prices are simply unattainable for many. ‘Rentvesting’ simply puts you on an easier path to build equity and create wealth.
So why should Gen Y rentvest first?
5 Reasons why Gen Y should be rentVesting first
1. More affordable
Investing in property is firstly way more affordable. If you are living in Sydney, then purchasing a home in Sydney as a first home buyer is near enough impossible. However, by investing in property, you can tap into other property markets such as Brisbane where the cost of property is far more affordable. This means you can save up a smaller deposit faster and reach your property goals sooner.
2. Continue to enjoy your current lifestyle
As you are investing in property, you don’t need to move into a new home. This means you can continue to live at your parents, or rent wherever you want to live. Typically, this means you will be living close to transport, retail, dining and other necessary amenities, whilst be able to get to work with ease. Renting in a blue ribbon suburb also tends to be a lot more affordable than taking out a mortgage there and is a popular lifestyle choice for many.
It also means that you have more freedom and can move around more and even live in a new city if you wish or for a career move, or travel the world for six months. ‘Rentvesting’ certainly gives you more lifestyle options that your own home wouldn’t.
3. Equity Growth
If you do your careful research, then you can invest in a property in a high growth suburb that is projected to perform well in the future. Buying an investment property off the plan is even better as you buy at today’s prices and by the time settlement arrives, which could be 12 months or more down the track, your investment property could have gone up in value, creating good equity growth without you even having started to pay a mortgage. You can then use this equity towards buying investment property two, or towards buying a home to live in. it’s best to speak to a Property Consultant like iBuyNew who can help you create a plan to build up a strong property portfolio to reach your goals.
4. Tax Savings
By investing in property rather than becoming an owner occupier, you can take advantage of some massive tax savings that can reduce your taxable income, particularly good if you are a high income earner. Depreciation and negative gearing are two of the largest tax savings to take advantage of, and buying a property that is brand new such as off the plan apartments means that you can benefit from the highest depreciation savings in year one.
Of course, there are plenty of other expenses that you can claim and it’s best to check with the ATO what claims you can make, whilst get yourself a great accountant. Some of the more popular expenses that are claimable include:
Advertising for tenants
Body corporate fees and charges
Council rates
Water charges
Land tax
Cleaning
Gardening and lawn mowing
Pest control
Insurance (building, contents, public liability)
Interest expenses
Property agent’s fees and commission
Repairs and maintenance
Some legal expenses
Travel undertaken to inspect the property, carry out maintenance or to collect rent
Although it’s important that you don’t just buy an investment property for tax savings, it can help reduce your taxable income. Usually though, an investment property won’t usually cost you much to hold as the rental income should normally cover most of your outgoings, meaning that your lifestyle won’t be hugely affected.
5. Lead a comfortable retirement
Do you want to lead a comfortable retirement? Let’s face it, by the time Gen Y’s reach retirement, the retirement age will probably have increased and there might not even be any money left in the pension pot to look after us, especially with people living longer. We therefore cannot rely on our superannuation to see us through retirement, so it is essential that we act today to put a financial plan in place before it’s too late. By having a strong property portfolio in place, this can help us to reach financial freedom and even allow us to take an earlier retirement.
Remember, the earlier you start investing in property, the longer you have to build up a strong property investment portfolio to see you through to retirement.
With property prices generally doubling in value every seven to ten years, it makes sense to hold on to property as a long term investment and to start as early as possible. The later you leave it, the harder it becomes to get on the property ladder and the less time you have for your investments to work as hard for you as possible.
Don’t let any more great opportunities pass you by. Start rentvesting today to secure your financial freedom.
