What is rentvesting?
Rentvesting is a home ownership strategy for people who want to enter the property market but can’t yet afford to buy their dream home.
The approach is popular with the younger generation who are finding it harder to purchase a property to live in, as costs of both property and living continue to rise.
How to rentvest
Rentvesting involves renting a property where you want to live (such as the city) and buying an investment property where you can afford (such as a rural suburb).
Instead of sitting unoccupied, you lease the investment property out to tenants and use the money this generates to cover some or all of the ownership costs. If you can earn a profit on your investment property, even better – you can put this extra income towards paying your own rent and/or saving up a deposit for your dream property.
Rentvesting may work best in locations where the difference in rent payments and mortgage repayments is substantial, rather than almost the same.
While you might end up spending the same amount if you just rented or just lived in the home you own, rentvesting gives you the opportunity to live where you really want to while still getting your foot on the property ladder.
If you stick with your rentvestment long enough, ideally down the track you’ll be able to reap the rewards and buy the home you really want, in the area you really want, making your property dreams a reality.
Who does rentvesting suit?
While technically anyone can rentvest if they have the means and motivation to, it may be more appealing for certain people, such as those who:
- Move around a lot for work
- Like to travel for long periods at a time
- Prefer the flexibility of renting (which eliminates buying and selling fees)
- Want to live in upmarket suburbs or near entertainment hubs that are out of their buying budget.
As with any financial strategy, there are advantages and disadvantages that come with rentvesting. We break them down below so you can weigh them up.
Pros of rentvesting
In addition to entering the property market sooner rather than later and helping you save for your dream home, here are some of the benefits of rentvesting:
Live the lifestyle you want
Instead of living in a home you can afford but that doesn’t make sense for your lifestyle, you can rent somewhere that ticks all your boxes for work, hobbies, safety and security, local amenities etc. until you can afford to buy there. No sacrificing lifestyle necessary.
Grow your wealth
Rentvesting allows you to start building your investment property portfolio, which can ultimately generate wealth and help you build up your retirement nest egg.
When you rent, your landlord is usually responsible for maintaining the property. This means you don’t have to worry about sorting out any issues to do with things like electricity or hot water. You shouldn’t have to pay to get them fixed either, as the cost will come out of the landlord’s pocket, not yours.
Renting can make it easier to upsize or downsize if your circumstances change, as you don’t have to go through the process of selling your home and buying a new one. On a similar note, renting gives you the freedom to move around for work or for a change of scenery without significant expense. It also gives you the opportunity to experience living in different places and property types, before settling on one when you buy your own home down the track.
Another potential pro of rentvesting is that you may be able to claim tax deductions on your investment property that you wouldn’t get when buying a house to live in. This can include the interest charged for loans, rental costs like insurance and advertising, depreciation costs, and in some cases any new fixtures and fittings that have been added to the property.
Potential capital gain
If your investment property increases in value, you may be able to sell it down the track for a profit. You may also be able to use the equity in your property to secure additional credit to help finance any future plans you may have.