For many Australians, the path to property ownership begins with buying a home to live in. However, purchasing an investment property first – known as 'rentvesting' – can be a smarter financial strategy.
With the rising costs of home prices in many of the major capital cities, considering creative ways to enter the market is more important than ever.
The power of good debt vs. bad debt
Investment properties represent 'good debt' because they generate income through rent, provide tax deductions and typically increase in value beyond their costs. This is unlike owner-occupied homes, which create 'bad debt' by draining resources without producing income. Due to this, investment properties can improve your financial position and borrowing capacity.
Financial flexibility through rentvesting
Rentvesting allows you to maintain your preferred lifestyle while building wealth. You can rent in an area you love but can't afford to buy in, while owning an investment property in a more affordable location. This strategy provides both property market exposure and lifestyle benefits without overextending your finances.
Market entry advantages
Investment properties often have lower entry points than owner-occupied homes in desirable areas. This makes it easier to enter the property market sooner, particularly in cities where house prices have surged. The ability to start with a more modest property can help you build equity faster for future investments.
Tax benefits and cash flow
Investment properties offer significant tax advantages that aren't available with owner-occupied homes. These include deductions for mortgage interest, property maintenance and depreciation. Combined with rental income, these benefits can create positive cash flow, making the property more affordable to hold long-term.
Strategic growth opportunities
When buying an investment property, you can focus purely on growth potential rather than emotional factors. This means selecting locations with strong infrastructure development, consistent capital growth and gentrification potential. By removing personal preferences from the equation, you can make more objective decisions about where to invest.