Australians could profit more from rentvesting than buying a home, adviser says
Australians who choose to rent and invest — rather than buy a home to live in — could be up to $116,120 better off over a 10-year period, depending on their tax bracket, according to one financial adviser.
Ben Nash, founder of Pivot Wealth, compared the costs and potential returns of buying a home versus adopting a rentvesting strategy, where an individual rents their residence while purchasing an investment property of similar value.
“The average Australian property price has just cracked the million-dollar mark, and with mortgage interest rates still hovering around 6%, the pressure is on to make the right move when it comes to buying property,” he said.
Nash’s analysis used the national average property price of $1,002,500 and an average rental yield of 3.7%. He calculated that buying a home to live in would cost about $60,000 per year in mortgage interest and $10,250 in ongoing expenses, totalling $702,500 over a decade.
Factoring in an assumed property value increase of 6.3% annually, the property could be worth around $1.85 million after 10 years, leaving the owner approximately $147,500 ahead after costs.
For renters, Nash (pictured right) estimated annual rent at $37,093, or $370,930 over 10 years. Under the rentvesting model, the individual would buy an investment property of the same value, incurring similar holding costs but offset by rental income and tax deductions.
“In buying the property as an investment, the holding costs to you are the same, at $70,175 each year. But because you’re running the property as an investment, you’ll earn a rental income on the property of $37,093 each year, meaning the ‘net’ annual cost to hold the property is $33,082,” Nash said.
He added that tax deductions for investment property expenses could reduce the annual net cost to between $21,545 and $26,507, depending on the owner’s income. Over 10 years, total costs for the rentvesting strategy would range from $586,380 to $636,000, including rent paid for the primary residence. This would leave rentvestors between $66,500 and $116,120 ahead compared to owner-occupiers.
Nash cautioned that these figures are based on simplified assumptions and recommended seeking professional advice before making major financial decisions.
“One thing that I hear a lot from people when talking through this strategy is the security benefits you get from owning your own home,” he said. “I 100% agree with this sentiment, but I also know that many people today aren’t making the progress they want getting ahead with their money.”
Nash also noted that the rentvesting approach only works if individuals follow through with investing. “If you’re not in the market, you miss out on all of the upside and you’ll end up further behind,” he said.
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