For many of us, maintaining an investment property requires serious effort. We all understand that…
The homeownership journey used to be straightforward: find an area where you want to live and buy a property there. But with rising house prices and interest rates, today’s journey can have more twists and turns than a good thriller.
Many people who can’t afford their ideal location opt to buy somewhere affordable, and then slowly climb the property ladder. But a new style of property ownership and investment is emerging – rentvesting – that’s allowing savvy property investors to live where they want straight away.
What is rentvesting?
Rentvesting is where people rent a property in a location they want to live in but can’t afford to buy, while purchasing an investment property in a location that suits their budget. This gives people the best of both worlds – the lifestyle they want immediately and an investment in bricks and mortar that will help them climb the property ladder.
For example, a white-collar professional working in the CBD could rent an apartment in the heart of the city while investing in a house in the suburbs. The rent from the house helps pay their apartment costs while they pay down the mortgage.
But is rentvesting a sound strategy for property investors?
The pros of rentvesting
The big appeal of rentvesting is the ability to live in a location that suits your lifestyle or the needs of your work.
Another plus is that instead of saving up to buy a more expensive place while renting, you can own a cheaper property faster. You can also use a smaller deposit and enjoy any long-term benefits of that investment sooner.
The cons of rentvesting
On the con side of the ledger, rentvesting means you are living in a rental property with a landlord, and don’t have total control of your home. You may also be dealing with rising rent, changing rules, and the ever-present possibility of having to move if the landlord decides to sell.
But the real drawback could be the double financial hit, where you are paying high rent to live in a desirable location while also paying down a mortgage on a property in a cheaper area with lower rental returns. A rentvesting arrangement could also see you missing out on first homeowner grants such as the First Home Loan Deposit Scheme (FHLDS).2realestate.com.au
Consider whether rentvesting is right for your situation
Rentvesting is a property investment strategy that’s largely driven by people’s desire to live in a certain location they can’t afford straight away. If location is a non-negotiable for you, rentvesting could offer another pathway to achieving your lifestyle goals while also still getting you on the property ladder. But it’s wise to weigh up all the pros and cons before considering whether you could become the next rentvester.
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