Property prices appear to be having an impact on the Australian dream of living in and owning your own home, particularly within Australia's capital cities.
That's where the new trend of rentvesting could help you get a foot in the property market.
Typically a rentvestor is a home buyer that chooses to rent in the area they want to live, but can't afford to buy, and buys an investment property in a more affordable area.
According to Mortgage Choice's 2015 Investor Survey, 36.6 percent of Australian Investors were first home buyers (or rentvestors), this is a significant increase from the 21.2 per cent ratio recorded by the Investor Survey in 2014.
As with any strategy there are a number of things to consider. Here are a few key pros and cons associated with a rentvesting strategy:
Choose where you live- one of the most obvious rentvesting pros is the ability to maintain the lifestyle you want (i.e. proximity to the beach, closeness to work, etc) and at the same time purchase a property you can afford.
If you enjoy the urban inner city neighbourhoods renting will, generally speaking, be cheaper than buying property because the capital growth for property usually outweighs the rental growth rate. Rentvesting allows you to live where you aspire to, as you build equity in property you own elsewhere.
Additional income potential- If the rent you receive from your tenants is greater than your loan repayments on the investment property you'll benefit from additional income. This additional income can be saved for a holiday, pay off student loans, on everyday living expenses or to fast track your mortgage repayments. Keep in mind, this additional income may be subject to tax so you will need to consider this within your strategy.
Flexibility- Do you enjoy regularly changing your surroundings? Or just enjoy the flexibility renting gives you?
With more freedom to move around and experience different lifestyles, types of homes and neighbourhoods, rentvesting gives you this option. This also means that if you need to relocate for your career you have more flexibility in choosing where you live and how long you stay there for.
Limited changes- if you're into home DIY to make a space your own, living in a rental property will restrict you to the terms of the lease agreement and you will be unable to make significant changes to the décor of the home you are living it.
Renting is always temporary- the nature of a rental agreements means you will have to come to terms with the fact that as a renter the home you live in doesn't belong to you and your stay there is only ever temporary.
This can be challenging for some, particularly if you don't enjoy moving or you reached at a point in your life where you want to put down more permanent roots. Living on a year to year lease isn't for everyone, so you will have to factor the hassle and cost of possibly having to move more frequently and the uncertainty of renting into your decision.
Need help finding if rentvesting could be the strategy for you? Talk to us for an obligation free consultation.