Probably the original ‘rent-vestor’ – Brad Beer – joins us to explain why he waited until age 40 to buy his first principal place of residence. He is a man ahead of his time!
Kevin: We have spoken on the show about rentvesting in the past. I love talking to people who’ve done it, because I am quite often asked “Do you know of anyone who is rentvesting?” Well, I know of someone who did, and that’s Brad Beer, from BMT Tax Depreciation, who joins me.
Good day, Brad.
Brad: Hi, Kevin. How are you today?
Kevin: Yeah, good, mate. You’re a rentvestor. Tell me about it. How did it work for you, and what did you see were the advantages?
Brad: I was a rentvestor until about the age of 40, which was a long time. I’m only 41 now.
Kevin: That was, what, last year? Yeah, I was going to say.
Brad: Rentvesting to me, why did I do it, I think it depends on a few things. If you look at the current situation, where in areas properties become… Obviously, increasing prices and I don’t know if the word “unaffordable” is the right word for it, but expensive to get into a property where you want to live. And that was the same in different places in the past.
I took an idea where I thought “I’ll rent a property in a place where I’d like to be.” The returns on higher-priced property are quite low, and what I did was went “I can rent something here, and I can buy three or four different investment properties. My risk is reduced, and I’ve still got money in the property market, so I’m still able to take advantage of the growth.”
I actually then just kept doing that over and over again for a long period of time and renting better properties, the rental return being pretty light on higher-priced property often as a percentage. I bought a lot of less-expensive properties, took advantage of the growth, and it was a good strategy with me, absolutely.
There are some pros and cons with rentvesting. To me, I think some of the cons are things like you can get kicked out because of the lease when it finishes. But I think on that, you have to realize that maybe you’re going to need to move on day and make an allowance for removal in the costs of these things, I suppose.
The ability to change the property is a bit of a con, I suppose. You need to find a property you’re happy with. And you just don’t have some of the stability that you do when you own your own house.
The fact that you also lose out on some of the potential… The family home is the one tax haven in the world that doesn’t have a capital gains tax associated with it, and not being able to take advantage of that is obviously something that makes it a negative thing.
To me, I spent a good 15 or 18 years of time where I rentvested. I was able to live where I wanted to be, rent out property that was fantastic, and still invest in multiple properties in multiple places and take advantage of growth.
Also, obviously, I got to take advantage of the tax deductions that come along with investing in a property through the interest and things, the deduction, the income. But also, obviously, that depreciation – me being the depreciation guy – is not the reason to rentvest.
It’s one of those things where the cash flow, when you compare whether I rent a property and buy another property, the cash flow difference between the two – with that depreciation included – sometimes comes out very, very similar. So if you’re still able to take advantage of the growth and live where you want to live but you may not be able to afford to buy, it’s definitely a great approach towards achieving that.
Kevin: The two things you mentioned there about the cons of rentvesting – one was a lack of security, the other one was that you don’t have the ability to do any work on the property yourself – they’re pretty much balanced out by the fact that you are rentvesting.
You have your own property, you can pour a bit of capital or a bit of your own personality into that, but also, you’re building up your strength, aren’t you? You’re building up equity in the properties that you own, so it’s really not dead money at all.
Brad: I don’t see rent as dead money at all. Really, I have changed from rentvesting. My mentality 15 years ago was always “Well, I make some capital gains out of those properties and therefore some money out of those properties, and to buy the one that I do want to buy one day, I’ll have made the money to do it. So, I’m not having to try and save it, because I’m making it out of the growth of those properties.”
Yes, you still have opportunity to do those renovations, and I’ve done a lot of renovations and small developing, as well, at the same time. Being able to have not a whole bunch of borrowing capacity tied up in a principle place of residence at a young age meant that I had the flexibility to invest in those properties, chop change, and make some money from them.
Kevin: Well, it was good talking to you. Brad Beer, from BMT Tax Depreciation. Thanks for your time, Brad.
Brad: Thanks, Kevin. Always glad to be here.