Rentvesting is a trend that is picking up, particularly amongst younger first home buyers in metro areas. So what exactly does this term mean, and how can you figure out if it is for you? Find out below.
What are rentvestors?
Rentvestors are people who rent the property they live in but are investors in the real estate market. The property they purchased might be in a completely different state. They may own it purely as an investment to sell down the track or see themselves moving into it down the track.
This trend is growing as properties in the inner-city become less affordable to young buyers. However, because this is often where this demographic prefers to live, rentvesting is the perfect way to take a first step in property investment.
There are two types of rentvestors. The first type are people who enjoy the inner-city lifestyle but cannot afford to buy a home there. They might purchase a property somewhere else and let it gain value over time.
The second type of rentvestors are those that are constantly moving around due to work or lifestyle, so they might choose to purchase a property somewhere, but actually live in short-term rental properties.
Pros and cons of rentvesting
The major benefit of rentvesting is that you can live where you enjoy the lifestyle, instead of just where you can afford. As inner-city metro markets consistently creep higher in price, rentvesting is becoming more popular, particularly among young buyers who are not ready to give up city life yet.
Another clear pro is that you have invested in a brick-and-mortar asset that is highly likely to appreciate over the years. This will put you in excellent stead when thinking of starting a family or even retiring. Having money in property is one of the most popular wealth generation means in Australia.
A task that might make rentvesting unappealing to some is the additional administrative work involved in being a tenant and a landlord at the same time. You will likely be dealing with two property managers, as well as a mortgage, rental incomings and rental outgoings. Although this might seem tedious, these tasks can be taken off your hands with the help of an accountant.
When should you rentvest?
The main decider between rentvesting and buying to occupy is your gut-feeling on the situation. However, in case you are hesitating, here are two generic examples that might help you see if rentvesting is an option for you.
Example #1
You currently live in inner Sydney where you enjoy the lifestyle and you have just saved up a home deposit with your partner. However, you are quite serious in your relationship and know that in five years you would like to move to an outer-suburb and start a family. You also can’t afford a deposit for the type of property you would like in the inner city. Plus you would like plenty of space, a backyard and a safe neighbourhood with good schools.
In this instance, it could be best to purchase the property you envision yourself living in down the track and rent it out while you live in Surry Hills. When you are ready to move and start a family, you can use this property that will already be slightly paid off. It is also likely to have appreciated over the few years you have owned it, showing you the rewards of your investment already.
Example #2
You have just saved up for your first home deposit and enjoy your life in the inner-city of Brisbane. You also think that in about five years, you might like to move to the Gold Coast, so you are looking at buying a property there.
However, one day you walk past a property that perfectly suits your current needs. Not only it is located where you live in Brisbane, but it also comes in at just the right price point. Although you may forego security in terms of future planning, in this instance, it might be better to purchase the property where you would enjoy living right now. It is likely to appreciate and perhaps you could get an even nicer property on the Gold Coast down the track.
Ultimately, only you will know if you should rentvest or occupy a property based on your specific circumstances. However, make sure you discuss your options with a financial advisor or property professional to find out what might best suit your particular situation.
How to rentvest in 5 easy steps
Rentvesting can be simplified down into five steps. Use them as a guideline to help you increase your property portfolio in the smartest way.
- Do your research on the national property market and find areas that are predicted to grow
- Research rental yields in these growth areas to discover where you will get the best rental income
- Find the price point for the area you are looking in and save for a deposit and apply for a loan
- Purchase the property and find a property manager
- Get the property tenanted and leave it until you’re ready to move in or sell
Rentvesting has become a modern innovation for a reason, providing a foot in to the market to less experienced buyers. If you’re interested in finding out whether rentvesting is for you, get in touch with your local LJ Hooker agent today.
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.
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