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What is Rentvesting?

Rentvesting is a home-ownership concept where you rent a property to live in that is right for your lifestyle, whilst you build a property investment portfolio overtime. This strategy is becoming more and more popular amongst buyers due to the skyrocketing property prices in many parts of the country, especially in capital cities where demand in high.

Instead of acquiring the property they want to live in, people who take advantage of rentvesting will keep renting in an area they like living in. They then buy a more affordable investment property elsewhere. Rentvesters may never live there but they would have entered the property market sooner and working towards paying it off. This will allow you to continue living in an area that best suit your lifestyle (for example trendy area, good schools, close to work, close to family and friends) and at the same time building equity over time.


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Is rentvesting a good idea?

Rentvestors get the best of both worlds in a way. This is because you get to build equity in a property while avoiding the high cost of mortgage repayments on your dream home. Furthermore, the maintenance costs on investment, and mortgage interest, are all tax deductible.

On the other hand, rentvestors end up paying rent. They have to deal with all the problems renters face, such as unresponsive landlords and property managers as well as the possibility of having to move every few years when the rental contract expires. For many people, this can be undesirable.

Financial stability

Rentvesting is all about entering the real estate space without draining your bank account through paying off huge mortgage repayments. It’s a great way to build a solid asset base while still affording your desired lifestyle.

Flexibility

Rentvesting allows you to take advantage of lower property prices in a location you invest. Furthermore, it gives you the flexibility to relocate if your circumstances change. For example, as you start a family or a new job. You could build up capital faster to buy in the area where you want to live. 

Check your numbers. Do the sums and work out if you can afford the repayments on an investment property. While you rent somewhere, you’d like to live, it would help to consider loan interest, property management fees, repairs, and maintenance costs on the investment property.

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Is Rentvesting a good idea?

How Do I Start Rentvesting?

Get your finances in order

It’s essential to ensure that your finances are in order before applying for an investment loan. Make sure that you have paid off any debts or credit cards and have a good deposit saved up towards the investment property.

Research

When you’re buying your first investment property, it’s essential to consider how it will perform in the future. Whilst future returns can not be guaranteed, its important to research and buy in areas with good long-term growth potential so that you can build equity off capital gains. No one wants to invest in a property that falls in value or stays stagnant over time.

Determine the price point

Several factors will influence what you will buy, especially your financial position and location. Some of those to consider are; are you a first homebuyer, are you in financial distress and need to downsize? If you’re unsure where to start, speak with a trusted mortgage broker or financial planner. They can help you assess your finances and determine what kind of property you can afford. 

Once you’ve determined a rough price range for what you can afford, do some research on the market in an area that interests you. If possible, talk to some people who live there and ask them what it’s like.

Apply for a loan

Shop around to find the best deal and ensure that you get benefits from buying an investment property. This is rather than paying off your own home faster. Sometimes investors will add features like offset accounts to their loans. This is to earn interest on their money while their mortgage balance reduces.

Buy Your Property

It’s essential to make sure your investment will be profitable from the beginning. So you must speak to an expert mortgage broker who knows how to structure your loan for maximum tax efficiency. It’s also essential you talk with a buyer’s agent. This is because they can help you find the right and well-priced property. They have the experience and expertise you need to ensure your investment is profitable and reliable.

Find a tenant for your investment property

Once you own an investment property, finding tenants is vital to keeping costs down and maximizing your rental income. Property managers can help find tenants and manage the rental process. But this will come at a price, usually around 6% of the weekly rental amount plus GST per year.


Related Article: How To Select Your Ideal Market For Your Next Property Investment?


Property Q&A – Washington Mazambani

Rentvesting Pros and Cons

Rentvesting can be an excellent concept that can help you grow your nest egg, build equity, and provide a more stable cash flow for your future. However, with its popularity, many myths are out there. There are ups and downs with this strategy, therefore it’s essential to weigh all your options before making a substantial commitments.

Cash in buying a home or renting
Rentvest or Live In

Advantages of Rentvesting

Potential to purchase an investment property sooner

Rentvesting allows you to break into the property market sooner with a smaller deposit, as opposed to waiting several years until you are able to afford your dream home.

Tax advantages

You can claim tax deductions on mortgage interest payments and other expenses incurred. If your property has long-term capital growth, it will also attract capital gains tax if sold at a profit.

Flexibility

When you’re renting, you can easily upgrade or downgrade to a different home if your personal circumstances change, for example if you lose your job or get a high-paying promotion, with no stamp duty expenses or legal costs (costs that are associated with the buying and selling of property at any give time) to worry about.

Diversify your investments and spread the risk

Some investors prefer investing in areas with high yields. At the same time, others choose locations that are based on the quality of life they offer. Rentvesting allows you to invest in different suburbs and therefore reaping the benefits of diversification. This is especially important if you are looking to maximize your return on investment at a minimum level of risk.

Disadvantages of Rentvesting

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Projections over time

Rental costs

Since you’re spending money on two properties, it could impact how much you have available for other discretionary spending. You may need to budget for any maintenance or strata fees for your investment property. In the event that you don’t find a tenant, you’ll need to cover your mortgage repayments yourself and therefore incur extra costs.

Less assurance

As much as you may love your rental property, you don’t own it. This can be especially difficult if you form an emotional connection to a house but then the landlord wants you to move out for one reason or the other.

Miss out access to FHOG

You may miss out on access to first homeowner grants and other government assistance and concessions. For example, there are government first home buyer grants available to owner-occupiers. In addition, paying your stamp duty is usually cheaper when buying a home to live in compared to investment property.

Bottom Line

More and more people have found themselves unable to buy property in today’s overpriced real estate market. Rentvesting has given many individuals and families the ability to enter the real estate market without paying exorbitant mortgage payments.

Before you choose to buy a home or rentvest, make sure you can afford to rent and have a mortgage. Just because an investment property is cheaper than your dream home doesn’t necessarily mean that you can afford it, and just because renting feels like throwing away money doesn’t automatically mean you should mortgage yourself to the


You might also be interested in this article: Sealing the deal: Buyer’s Secrets You Need To Know When Dealing With Real Estate Agents.


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I am passionate about helping individuals create wealth through property investments. I am the co-founder, mentor and financial writer at WatuDaily, specialising in property investment, business advice and personal money matters. I was previously a financial adviser for over 15 years and it is on that high that I wish to share my knowledge and experiences and channel them towards a vision and purpose of helping others to realise and achieve their financial goals through my publications. As a financial adviser, I won a number of industry awards for the outstanding contribution I made to my clients and peers. I hold a Bachelor of Applied Finance degree and a Master of Commerce in Accounting and Finance degree. In my spare time, I enjoy travelling and staying active through playing sport.