Should you rent while building a property portfolio?
With property prices continuing to soar across the country, first home buyers and investors are looking for easier ways to enter the property market, yet still build wealth for retirement. One of the answers could be to rent while building a property portfolio.
Depending on your financial and lifestyle goals, the advantages of renting whilst property investing can be significant for many investors.
Some investors simply don't understand the benefits associated as they are attached to the stigma that poor people rent. The decision to rent and not buy a family home is a sound investment strategy especially if you focus on the numbers.
If you were looking to buy a family home in Sydney for about $1.5 million the alternative could be to purchase two smaller $750,000 properties and rent them out for $700 per week.
The $1400 gained from the rental can then be used to rent a $3 - $4 million home as expensive properties generally rent for half as much as median priced ones because the demand is less. This renting strategy will also enable you to claim all of the tax concessions associated with having deductible investment mortgages.
Additional reasons why investors struggle with renting include most people are taught to own - not rent - a home.
There is a mindset that 'I might get evicted renting', people believe they can't decorate a rental (but many landlords do allow this), the hassle of moving and the idea that rent money is dead money. This is only the case if the money which would have been used for a house is being spent on lifestyle items and not wisely invested.
The benefits associated with renting whilst property investing include that the investment money can work harder for less risk on several properties rather than one large asset, people can try before they buy in an area and test first if they like it before outlaying significant funds and a mortgage noose is not around the neck with one expensive asset.
This renting investment strategy is becoming more popular as property prices continue to rise and first home buyers struggle to live in their dream location. The stigma associated with renting is changing as people understand the opportunities that are associated with it. For many the idea of renting whilst building a property portfolio makes financial sense.