What is a Rentvesting?
A first-home buyers ‘rentvesting’ – buying an investment property while continuing to rent – to get a foot on the property ladder.
To rent or to buy? That is the question facing many grappling with the housing affordability crisis. As property prices continue to rise, it’s becoming increasingly difficult for first home buyers to break into the market, prompting some to consider whether renting a home may work out to be more affordable than buying a property. A recent Reserve Bank of Australia discussion paper revealed that there’s been very little difference in the long-term economic fortunes of buyers and renters since 1955. The paper found that despite rising rents and regular reports of property booms and bubbles, renters and buyers ended up in a similar financial position. So if you decide to “rentvest” – rent somewhere to live and buy an investment property – you may come out in a better financial position than if you buy your own home straight away.
Owning a home was once a cornerstone of the Great Australian Dream. However, thanks to skyrocketing Melbourne property prices, the dream is starting to take a different shape for some residents. With the median house price hovering around the $1 million mark, breaking into the property market is extremely difficult for many first-time buyers.
This has led to the rise of rentvesting: instead of buying the property they want, people rent a home and then invest their leftover money elsewhere.
For example, say you want to buy a four-bedroom home but the sale prices in the area mean these homes are out of your reach. The rentvesting solution to the problem would be to rent the ideal four-bedroom house where you want to live, and then buy a property in a suburb where prices are more affordable.
The property you buy can then be rented out to help cover your own rental payments and later sold for a capital gain. This strategy lets you have the lifestyle you want now, while at the same time building a property portfolio for the future.
What are the benefits are being a Rentinvestor?
- Enter the property market 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.
- Live the lifestyle you want. If rental prices allow, you can live in your dream home now and not have to compromise on location or features, and you don’t have to worry about taking on the long-term commitment of a big mortgage.
- Build wealth. Rentvesting allows you to start building your investment property portfolio, which can be used to generate wealth for you and your family in the future.
- Save for your dream home. Owning an investment property allows you to save to buy your dream home.
- Flexibility. When you’re renting, you can easily upgrade or downgrade to a different home if your circumstances change, for example if you lose your job or get a high-paying promotion, with no stamp duty expenses or legal costs to worry about.
- Move around. If you’re not ready to put down permanent roots in a particular area, rentvesting gives you the freedom to move around and even travel the world if you wish.
- Tax benefits. You can claim interest payments on your investment property loan as a tax deduction.
- Choose where to invest. Where you want to live and the best place to buy an investment property often won’t be the same, so rentvesting allows you to be ruthless when it comes to choosing an investment.
Before you choose to buy a home or rent and invest, make sure you can afford both strategies. 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 hilt.