What is rentvesting and is it right for you?
- July 15, 2019
You might have heard the term ‘rentvesting’ and wondered what it is. Rentvesting is the term given to the action of continuing to rent a place to live and purchasing an investment property.
Until recently, property prices have been soaring especially in Sydney and Melbourne suburbs. The kind of places that many of us like to live. As a result, rentvesting has become a popular way for many first-time property owners to enter the market and continue to live the lifestyle they are accustomed to.
A few years ago Mortgage Choice released the findings of a study showing just how popular the movement was becoming. Rentvestors took up 20 per cent of the investor market in Australia in 2014. That number had grown to a third by 2016.
Simon and Gary are a Sydney based couple that is looking to enter the property market. Between them, they have $250K in savings and are tossing up their options:
Simon and Gary could purchase a couple of lower value investment properties in high growth areas either interstate or in NSW. The rental income would help service the loans and down the track, they could use the properties as equity to purchase their dream home.
Simon and Gary would be able to hand the management of their property over to :Different and sit back and watch their investments mature. All while staying in their inner-city rental property close to their family, friends, workplaces, favourite cafe and the beach.
If Simon and Gary decided to purchase their own home they would need to move further from the CBD to meet their requirements. They would have access to the first home buyers grant and would have acquired a non-tax deductible asset.
Simon and Gary would have the option to improve their property with renovations etc and truly make it their own. The couple would also be able to use this property as equity down the track if they wanted to branch into the investment property space.
Key things to consider
Of course, this is just an example and you will need to weigh up the pros and cons for yourself.
To Rentvest: the pros
- You can enter the property market sooner
- Flexibility to move around
- Continue to live the lifestyle you’re used to
- Rental income
- Tax benefits
- Invest in high growth areas
To not Rentvest: the cons
- Possiblity you’ll miss out on first home buyers government grants on opportunities
- You’re paying someone else’s mortgage
- You can’t renovate and improve the place you live in
Questions to ask yourself
At the end of the day, it all comes down to personal choice and what you can afford. A few key questions to ask yourself are:
- Are you getting into the property market to grow a portfolio?
- Are you comfortable waiting and purchasing a home?
- What is your budget?
- What are your property requirements?
Speaking with your accountant, a financial planner and a mortgage broker is a great first step to understanding your specific situation and what might be the best approach for you.