25 Jan What is rentvesting and how can it help your investment strategy?
The media is filled with news stories covering just how hard it is to enter the property market. While many people want the ‘perfect home’ as their first property, some are opting for a more affordable option as they work towards owning their dream home. It’s called rentvesting.
What is rentvesting and how does it work?
Rentvesting is when you rent where you want to live and buy an investment property elsewhere, in a more affordable area For instance, purchasing an investment property in Tasmania is much more affordable than purchasing a similar property in inner-city Melbourne.
Rentvesting is a great way to get on the property ladder and has become more common as property prices go through the roof in popular living areas like desirable coastal locations and those in close proximity to CBDs.
Why is rentvesting a good first step on the property ladder?
It’s important to note here that a ‘good’ first step on the property ladder is different for everyone.
Rentvesting is usually best-suited for those that have the funds to purchase a property, manage the ongoing costs while renting another property for themselves.
Another big benefit of rentvesting is that it allows the owner to take advantage of negative gearing benefits. 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?
The short answer is yes. If depreciation is available and eligible, the rentvestor can claim it to its full potential.
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.
Since depreciation is the natural wear and tear of property and assets over time, rentvestors don’t need 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.
Depreciation has the potential to boost 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. Anyone looking to rentvest can learn more about depreciation by contacting BMT today on 1300 728 726 or Request a Quote.