Pros and Cons of Buying Your First Home While You Rent

These days, first-time home buyers are increasingly exploring innovative strategies to enter the real estate game. One such approach gaining traction is buying your first home while continuing to rent. This strategy, often called “rentvesting,” offers an investment opportunity and lifestyle flexibility. But is it the right move for you?

Let us help you decide by discussing the pros and cons of this modern approach to homeownership and how Deltos Finance can assist should you decide to rentvest. 

What Is It Like to Buy Your First Home While Renting?

Buying your first home while renting is indeed a form of rentvesting. This strategy involves purchasing a property as an investment while continuing to rent in an area where you prefer to live. It’s a viable way to get your foot on the property ladder without compromising your current lifestyle or location preferences.

Say you’re living in a trendy inner-city apartment in Sydney and want to acquire your first house in a more affordable area but can’t give up your urban living in the big city. Rentvesting can be a happy compromise. You can continue enjoying the vibrant urban lifestyle while owning a property in a high-growth suburb or regional area like Hobart in Tasmania. While not your primary residence, this first-owned property can become your ticket to building equity and generating rental income. 

If you seek more answers to questions like ‘What is rentvesting?’ and ‘Where should you rentvest?” head to one of our other blogs titled ‘Let’s Talk About Rentvesting in Australia.’ For the next sections, we’ll focus on the pros and cons of rentvesting to help you decide whether it’s the most suitable path for you as a first-home buyer. 

Pros of Rentvesting or Renting to Buy a House 

Purchasing your first home and renting out that property while continuing to live in your rented apartment or condo in the city has a few upsides. Here are some of them:

• Enter the Market Sooner: When you buy your first home or investment property in a more affordable area, you can potentially enter the market earlier than if you were saving for your dream home in a bigger city or pricier location.
• Build Equity While Maintaining Lifestyle: You start building equity in a good property without compromising your current living situation or lifestyle.
• Potential Tax Benefits: As an investor, you may be eligible for tax deductions on expenses related to your investment property, including interest on your mortgage.
• Maintain Flexibility: You can move for work or lifestyle reasons without the hassle of selling your primary residence.
• Diversification: Your investment property can be in a different location or property type, diversifying your property portfolio from the start.

Cons of Purchasing Your First Home While Renting

If done right, buying an investment property and renting it out can help you build wealth. However, if you’re doing it while continue renting an apartment or house, it may come with a few disadvantages, including:  

• Dual Costs: You’ll manage two sets of housing costs—your rent and mortgage repayments. That can be financially challenging if you fail to prepare your finances for rentvesting or experience negative gearing in your investment. 
• Missing Out on First Home Owner Benefits: In some cases, buying an investment property first may make you ineligible for certain first-home buyer grants and concessions. Be sure to consider that before deciding to rentvest.  
• Emotional Disconnect: You may not experience the emotional satisfaction of living in your own home, which is important for some buyers. That is unless you’re firmly determined to own a rental house as your first property.
• Property Management Responsibilities: As a landlord, you’ll need to manage tenants and property maintenance, which can be time-consuming and potentially stressful, especially if you live far from your rental property. The workaround here is to engage a local property management company. 
• Market Risks: Like any investment, there’s a risk that your property may not perform as well as expected, potentially affecting your financial position and goals. So, be sure to consider different market factors before rentvesting. 

More Considerations Before Making a Decision

Besides the clear pros and cons of buying an investment property as your first home while you continue renting your existing residence, here are more things to consider:

• Location Research: Research potential investment locations thoroughly. Look at rental yields, capital growth potential, and local market conditions to ensure you purchase your first home or any property in a profitable area. 
• Financial Planning: You must assess your financial situation before making a big move like rentvesting. For instance, evaluate your ability to manage both rent and mortgage repayments long-term. It’s also a good idea to see whether you have enough funding to engage the services of a property management company monthly and spend on maintenance activities.  
• Future Goals: Consider how this modern approach to homeownership aligns with your long-term property and lifestyle goals. Eyeing to own a property in Tasmania? Feel free to consult with experts like our mortgage brokers in Hobart, Launceston, or Carlton to see whether rentvesting is suitable for you. 
• Tax Implications: Owning an investment property in Australia may come with tax benefits. Still, talk to a tax professional to understand the full tax implications of rentvesting as your property investment strategy.
• Loan Structure: Explore different loan structures that might benefit your situation, such as interest-only loans for investment properties. With interest-only repayments, you can manage your cash flow more efficiently for a specific period. Speak with experienced mortgage brokers to learn more. 

How Deltos Finance Can Help

At Deltos Finance, we understand every first-time buyer’s situation is unique. Our expert mortgage brokers in Tasmania can help you maximise buying your first home while renting by assessing your financial position. We’ll help you understand your borrowing capacity and how it aligns with your investment goals.

More importantly, we have access to an extensive range of lenders in Australia and can help find a loan product that suits your rentvesting strategy. We’ll also help structure your loan to maximise potential tax benefits and minimise financial stress.

Buying a rental property as your first home while renting can be a practical way to enter the property market in Australia, but it’s not without its challenges. By partnering with Deltos Finance, you’ll have expert guidance every step of the way. 

Contact us today to get started.