Last updated 04 August 2020
Yes, we know it kind of sounds made up, but we wanted to let you know what it is and if it could be an investment option for you.
Rentvesting is the process of purchasing an investment property in a more affordable area, and renting to live in a different location. It’s the ability to make your way on the property ladder, but not at higher cost of buying in the location you want to live.
Many individuals in Australian cities are finding that the cost of buying a property in a location they’d like to live is out of the question – which is where rentvesting can come into play. The 2019 PIPA Investor Sentiment Survey found that 63% of investors said they would consider rentvesting.
Here’s a breakdown of the pros and cons:
Some quick pros
- Ability to enter the property market sooner – you don’t need to save as much of a deposit, which can generally take years of saving
- Start building your investment portfolio – this can allow you to build your wealth, equity and set yourself up in the future
- Live where you want to – while you might not have been able to buy in your preferred area, you can still live where you want
- Flexibility to change – if your family situation changes, or you’re looking for a new location, you’re not tied down by purchasing a house to live in
A few cons
- Not buying a house for yourself – depending on how you saw your home buying journey, you might have preferred to buy the house for yourself
- Restricted by rental rules – you also don’t have the ability to change what you like about the place you’re renting to live in, you can’t change the wall colours, etc.
- Renting is temporary – since the place you’re renting out isn’t yours, you may be asked to leave no matter how much you don’t want to
But is rentvesting a good way to invest your money?
It’s always good to begin with understanding that any investment strategy includes risk. So, this begs the question – would rentvesting be a good investment strategy?
Investing in property means you’re entering a potentially less volatile market, with the ability to earn income when you are renting the property out to a tenant. You can also benefit from capital growth if you sell your property if the prices rise. There are also a range of tax deductions you can claim on your investment property.
However, there are potential cons with investing in property. If interest rates were to rise, your mortgage repayments are likely to increase. Also, if you find your property without a tenant for a while, it could impact your cashflow.
Depending on the area, if the property values were to decrease could mean that you would be paying for a property that is no longer worth what it cost to buy initially.
Like with any property investment strategy, it’s important to do your research before jumping into it. Depending on market conditions, renting demand and the area you choose to invest, your rentvesting strategy could change.
Understanding the flexibility rentvesting offers with the ability to enter the property market and live in an area you prefer are definitely amazing benefits from a rentvesting strategy.
However, it’s always a good strategy to have an expert on your side. If you’re looking to purchase an investment property, speak to your local Mortgage Choice broker who can help find a suitable loan for you.
