Rentvesting can be a great option for those who want to own property, but can’t afford to buy in their current suburb. It means that you can buy in a more affordable location, possibly in another part of the country, while living a comfortable lifestyle renting in your ideal location.
For example, many Australians are aware of how expensive it is to buy property in Sydney which means that many residents there are renting for longer. But, for those keen to enter the property market, investing in property in another city could be an option.
In this article, we’ll explain what rentvesting is, why people do it and when it makes sense over buying a property to live in.
In an expensive property market, buying a home to live in can seem just out of reach. But if you’re willing to look elsewhere, you may be able to find an investment property that you can purchase while continuing to live and rent in your current location.
To put it simply, rentvesting is when you buy an investment property in a suburb you can afford, while you continue to rent where you actually want to live. It means that you can maintain your current lifestyle while still entering the property market.
As with most investment properties, you rent out the investment property and earn a rental income. Plus, you get to enjoy a number of tax benefits exclusive to property investors.
Rentvesting is popular with people who want to live in an area that they can afford to rent in, but not afford to buy. However, they have been saving up and have the borrowing power to buy in a more affordable area. They’ll find a suitable property to purchase and rent out, allowing them to generate more income while still living in their ideal location.
Renting a trendy, inner-city apartment in Sydney or Melbourne will generally be less expensive than buying a similar property. Rentvesting over buying a home to live in makes sense when the cost to buy (i.e. mortgage repayments) is substantially higher than the cost to rent a similar property.
Calculate your borrowing power based on your income.
Yes! You don’t have to invest in property in your home state, territory or city. If you live in a major city, you could save a lot of money buying in a regional centre or smaller city. Make sure that you properly research the area to ensure that it aligns with your interests and investment goals. A cheap house in a country town may seem appealing, but how likely are you to find a tenant quickly? What is the rental income like, and what are the vacancy rates in the area?
Alternatively, think about investing in some up-and-coming suburbs or cheaper areas on the outskirts of the city.
When thinking about where you want to buy, consider the following:
If you buy an investment property far from where you live, you’ll likely need to get property management. In your absence, a property manager takes care of the day-to-day running of your rental property. Their main duties include:
Being a landlord is time consuming, so even if you buy locally, a property manager can alleviate a lot of time and stress. With one, you won’t be responsible for answering late night calls and dealing with tenant issues.
|Pros of rentvesting||Cons of rentvesting|
|Maintaining your lifestyle by living in your preferred suburb that may be too expensive to buy into||As a renter, your landlord has rights over the property which can create uncertainty|
|Rentvesting can be a smart investment decision that could help build wealth and increase cash flow||Risk of being made to find a new home with short notice, especially if you have a family|
|You get the flexibility that comes with renting, allowing you to move around more easily than if you were living in a home you owned||Most landlords won’t allow you to personalise your property in many ways (e.g. no painting or kitchen renovations)|
|Investment properties come with certain tax deductions and advantages||Facing capital gains tax (CGT) when you sell the investment property. CGT is not charged when you live in a property you own|
|A cheaper property means a lower home loan which will increase the strength of your loan application||Investment loans come with higher interest rates|
Rentvesting isn’t a solution for everyone, even if you can’t currently afford your dream home. Here are some reasons why you might be better suited to buying a property to live in:
Search an address for price estimates and sales history.
Deciding if rentvesting is the right move for you will depend on your financial situation, goals and personal circumstances. Whether you rentvest or buy a property to live in, you are entering into a major financial commitment. Always consider the whole financial picture and how you will be affected in the long term.
If you are unsure what to do, consider speaking to a financial advisor or a mortgage broker. Lendi’s Home Loan Specialists may be able to provide insight into your borrowing power and what you can afford.
We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here
The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
Enter a few details about your home loan and see how much you could save on your repayments