February 6, 2020

What is Rentvesting?

As much as you might like to purchase a property in a suburb close to where you work or play, sometimes it simply isn’t feasible due to the market price.

For many purchasers and particularly first home buyers that’s causing a trend called Rentvesting. So what exactly is Rentvesting and how can you make it work for you?

What is Rentvesting?

Quite simply, rentvesting is a phenomenon where you rent where you want to live but buy where you can afford.

And it’s emerging as a particularly popular trend with young buyers who may need to live close to major capitals but can’t necessarily afford to purchase there.

According to Domain, rentvesting is also a strategy on the rise. In 2014, 20 percent of investors were “rentvestors”, while in 2016 that figure had climbed to a third.

This trend has a number of benefits, but there’s a couple of things to be mindful of as well. So, let’s delve a little deeper.

Rentvesting benefits

For many people, rentvesting allows them to continue living their desired lifestyle in the suburb or city of their choosing.

So, for example you might be a young professional in Sydney who needs to live in proximity to the city, but the cost of buying there is pretty prohibitive.

Instead, you continue to rent where you live, but purchase a property somewhere more affordable and then rent it out to tenants.

Now you have a foot on the property ladder without incurring a massive mortgage. If you pick the right investment property in the right area it might also increase in value over time, allowing you to ultimately sell it and get into a home more suited to your lifestyle.

Depending on the area you invest in, your investment property might also be positively geared. In this case your rental income covers all of your investment property expenses including mortgage repayments and perhaps offers a little income as well.

On the flipside, if you’re negatively geared, your property may help offset a little of your tax, but as a word to the wise you need to be mindful of the extra expense.

Rentvesting drawbacks

If you’re looking to buy an investment property for rentvesting purposes, you need to consider the expenses involved and budget for them.

As this won’t be your principal place of residence, no first home buyer grants or incentives will apply. You will also be footing the bill for rent where you live, and your rental income from your investment property may not quite cover the cost of your mortgage and ongoing maintenance and repairs.

That means you need to budget carefully and not take on too much risk.

The final word

Rentvesting is emerging as a real opportunity for everyday Australians to get into the property market, but whether it’s an option for you depends on your circumstances and goals.