Buying your first home while you rent.

Read time 3 min

When you buy your first property, it doesn’t have to be your forever home. In fact, it doesn’t even need to be your home at all. Rentvesting is becoming a more common way for people to enter the property market – but it comes with a few considerations.

What’s rentvesting?

Essentially, rentvesting is buying an investment property to rent to tenants while you continue to rent, stay at home with the folks or even travel overseas. The rental income you receive could be put towards your own rent, home loan repayments or other costs associated with owning your property.

Why rentvest?

Owning a property comes with the potential for capital growth – that is, the chance for the property to increase in value over time. If you’re not ready to put down roots or can’t yet afford to buy in an area you want to live, rentvesting could appeal to you as an alternative way to get on the property ladder and potentially take advantage of the benefits of capital growth.

Things to consider about rentvesting.

It’s important to think long-term.

Buying an investment property shouldn’t be a short-term plan. That’s why it’s important to consider how property investment fits into your future. If you’re looking to get married or have children, for example, you might not want to rent an apartment.

The extra costs of owning an investment property.

Whether you live in your property or not, you need to make sure you can cover costs like your mortgage, rates, possible strata fees, utilities and house maintenance.

There are home insurance options for home owners, landlords and renters to make sure you’re covered.

As a property investor, you might also need to consider things like property management fees, vacancy periods and tax implications.

It’s important you can still afford all these costs while you’re paying your own rent.

Your deposit and grants.

The type of investment property you choose to buy might be smaller than the house you intend to live in one day. The benefit – your deposit might also be smaller, making it quicker and easier to save up.

However, being an investor means you lose out on access to certain government schemes to help first home buyers enter the market. The First Home Owners Grant and First Home Super Saver Scheme provided by the Australian Government are only available if you intend to live in your house. The grant is different per state and can change regularly. Make sure you read the specific details to make the best decision for you.

Getting an investor loan.

When you buy a property specifically for investment, you’ll need to take out an investor loan. They generally have a higher interest rate. This means higher repayments.

Tax implications.

Each tax year, you need to declare your rental income and deduct relevant expenses associated with your rental property.

These expenses can include:

Management and maintenance costs (like insurance and property management fees)
Interest on loans
Borrowing expenses (like stamp duty and loan fees)
Depreciating assets (like carpet and appliances).

Make sure you talk to an accountant to understand how owning a rental property can affect your tax in the long and short term.

Making your decision.

Knowing what you want to achieve when you buy your first property – and understanding the different options – can set you up long term to reach your property and wealth goals. Everyone’s goals are different, so it’s important to consult an accountant or financial adviser to help understand which option might best suit you.

When it comes to buying a home, a Home Lending Specialist or Broker can help you with the finance and settlement process.