Rentvesting is when you buy an investment property in an affordable area and rent where you want to live.
Over the last few years, this strategy has become increasingly popular with buyers who are looking to get a foot on the property ladder, but who are finding themselves priced out due to rising property prices.
According to Mortgage Choice’s Evolving Great Australian Dream whitepaper, nearly 10% of Australians said they would rentvest in order to get into the market.
And it is easy to see why rentvesting has become so popular. In a nutshell, rentvesting provides first home buyers with the chance to enrich their credit profile and, where possible, build equity so that they make take the next property step sooner rather than later.
If you have been thinking about rentvesting as a potential property investment strategy, it is critical that you consider both the pros and cons associated with this tactic before making any moves in this space.
- Choose where you live
One of the advantages of rentvesting is that it frees you up to purchase where you can afford, and still live in an area that allows you to enjoy the lifestyle you want, whether that involves being close to cafes, nightlife, work, or the beach.
- Additional income potential
If the rent you receive from your investment property is more than your mortgage repayments, you will benefit from extra income. This money can be used for a holiday or to pay off existing debts. That said, it is important to note that any income you earn above and beyond what it costs you to pay the mortgage and run the investment property will be taxed. So make sure you consider when you are thinking about your investment strategy.
When you’re renting a home, you have the ability to move around and enjoy a change in scenery. Rentvesting gives you the freedom to experience different lifestyles, types of homes and neighbourhoods. This also means that if your career requires it, you have the flexibility to relocate elsewhere.
- Limited changes
When you live in a rental property, you are restricted to the terms of your lease agreement, so you will not be able to make any significant changes to the décor or carry out any renovations on the property.
- Renting is always temporary
As a renter, your home does not belong to you and your time there is only ever temporary. This can be challenging if you are someone who does not like moving around or you are at a stage of life where you want to settle down. Living on a year to year lease isn’t for everyone, so you will have to factor in the hassle and the cost of possibly moving around frequently, as well as the uncertainty of your stay into your decision.
- Bad tenants always a possibility
When you buy an investment property, you will inevitably have to find tenants to occupy the property. In most instances, your tenants will be strangers to you. As such, you have no idea whether or not they will take proper care of your property or if they are reliable with their money and will make their rental payments on time. To minimise your risk in this space, it is important you check any potential tenants’ rental history. If any red flags appear, considering reopening your search and finding another tenant.
There is no hard and fast rule when it comes to making a decision on rentvesting as it ultimately comes down to your personal circumstances and your financial situation.
Your local Mortgage Choice broker can provide advice on rentvesting and whether it could be a viable strategy for you, so make an appointment to see us today.