Rentvesting

What is Rentvesting?

As houses prices in metro areas have gone through a substantial increase, many people are becoming accustomed to being priced out of the market and being left with limited options. Rentvesting is a home owning strategy that may be helpful in scenarios like this. Through rentvesting you could have more freedom in deciding where to live, by simply renting in your desired suburb, and purchasing an investment property in a cheaper location. Whatever rental is made on the investment property, just goes to pay off the mortgage. While this is not a new strategy by any means, it is definitely one that is becoming a very popular option. So, is rentvesting right for you?

Why Would I Rentvest When I Could Just Buy?

As we watch property prices all over the country increase, a lot of first home buyers have begun to realise that if they wait to be able to afford the home of their dreams, they may be waiting a very long time. Perhaps you grew up in a certain suburb and had the dream to buy your own family home there one day, only to realise you are now priced out. Or maybe you love the cosmopolitan lifestyle that an inner city suburb might offer, but only have the budget to buy a home far from town. Out of 1000 Australians surveyed*, 48% of 18-34 year olds and 46% of 35-54 year olds surveyed said that rentvesting would be a good option for them. Only 28% of over 55s said the same, indicating that perhaps younger generations may be less willing to compromise on location when it comes to settling down, but are willing to think creatively and strategically in order to be able to live where they choose.

For some it may be nice and straightforward to buy a home in s suburb that they can afford. However, many are not prepared to sacrifice lifestyle or convenience because of budget limitations, when it comes to purchasing a house. If the option is there to change strategy and live where you like, while still having your money invested in another property that you can afford, then this begins to sound appealing.

What are the advantages of rentvesting?

The first and most obvious benefit to rentvesting is that you get to live where you choose and are not limited by what you can afford to buy. As a tenant in this property, you also will not need to worry about general maintenance costs, as this is usually up to the agent to look after.
You might even be able to claim certain tax deductions for having an investment property and make use of your own rental income to pay off your mortgage and even some of your own home rent. When you rentvest, you can enter the market and build your wealth sooner than later and there is always a potential to make some money on your investment property when you sell it down the track.

What is the downside to rentvesting?

Rentvesting is not a one size fits all scenario. The reality is, a home you rent is not yours, so you will need to ask the landlord to make any changes to the property you are in. Some may feel the insecurity of not knowing how long they will be able to rent and live in the one house is not something they would like to live with. Another thing worth considering is, when you enter the market for the first time by buying an investment property, you forfeit your First Home Owner Grant. You may also be charged a higher interest rate for an investment property.

Like The Idea? Here Is What You Should Consider.

Rentvesting can be a great option if it matches your objectives and stage of life. Here are some things to consider when implanting a rentvesting strategy:

• Keep your head on straight – Shopping for an investment property is not the time to get emotionally invested. Be focussed on exactly what kind of property you want to buy to suit your strategic needs. Do your research on suburbs and be careful not to judge too fast. Suburbs that may have had a bad reputation in the past may experience gentrification and change as time passes, so get good advice and go in with an open mind.

• Be ready for change – When rentvesting, you are both an investor and a tenant. Both these roles require a great amount of flexibility and preparation. As an investor, your property income may dip when tenants leave or your property requires repairs or maintenance. As a tenant, you will need to be equally be prepared both financially and emotionally if you need to vacate due to a rental agreement not being renewed. Both these scenarios will inevitably happen at one time or another. However if you are financially prepared and can deal with some change in your life, then it doesn’t have to be a deal breaker.

Often it can feel defeating not having the income to match where you would like to buy. However, rentvesting may offer you the freedom to enter the market and start your investment journey, while still enjoying the lifestyle and location that you dream of. A mortgage broker will be able to tailor an appropriate strategy to your specific situation and give you peace of mind in the knowledge that you are taking the necessary steps to a secure and comfortable future.

Call Watson Mortgages on 02 4038 1623 to make an appointment to speak to a mortgage broker today.

* Survey taken from https://www.lendi.com.au/inspire/insights/how-millennials-are-cracking-the-property-market/
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