Amidst the affordability crisis, ‘rentvesting’ is reshaping how young Australians and first-time investors approach the property market.
Traditionally, the homeownership dream was simple – buy a home, and live in it. However, as property prices soar, a growing number of people are adopting the rentvesting strategy. This unique approach allows individuals to rent where they want to live – often in areas that suit their lifestyle but may be too expensive to buy – while owning investment properties in more affordable markets.
How it Works:
Rentvesting flips the traditional path to property ownership on its head. Here’s how it typically unfolds:
- Choosing a Place to Rent: Investors rent a home in an area that meets their lifestyle preferences but where property prices might be out of their budget.
- Purchasing an Investment Property: Instead of buying a primary residence, rentvestors purchase property in locations with lower market prices but high potential for growth. These areas are often on the outskirts of major cities or in upcoming regional towns.
- Renting Out the Investment: The property they buy is then rented out to tenants, whose rent helps cover the mortgage and property costs.
For example, suppose that you need to live in inner-city Brisbane for work, but you’re finding it difficult to afford a property purchase in one of your preferred suburbs. Instead of compromising and purchasing elsewhere, you might instead opt to rent a home in one of those preferred suburbs. Meanwhile, you would purchase an investment property further from the city, or even interstate, in a region where prices are more affordable. With the right planning, the financial gain from your investment property might enable you to eventually own a home in a favourite suburb.
What are the benefits?
Financial Flexibility: Rentvesting offers remarkable flexibility. Renters can live in prime areas while avoiding the potentially higher costs of owning property there. This setup often results in lower daily living costs compared to bearing the full expenses of a mortgage in a high-cost area.
Higher Investment Returns: By choosing investment properties in high-growth areas, rentvestors can potentially achieve higher returns on their investments. These areas might not be ideal for living due to distance from workplaces or schools but offer greater affordability and investment opportunities.
Diversification: Where feasible, investors can spread their risks by owning multiple properties in different markets, protecting against fluctuations in any single market.
What are the drawbacks?
Lack of Stability: One major drawback of rentvesting is the lack of permanent residence stability. Renters may need to move frequently due to lease terms, rental increases, or landlords deciding to sell the property. This can be particularly challenging for families or those seeking a stable home environment.
Rental Uncertainties and Costs: While living in a rented property, individuals are of course subject to terms set by landlords, which can include unexpected rental hikes and restrictions on personalising the space. Moreover, the money spent on rent obviously does not contribute to building equity in the property.
Emotional Factors: Not living in a home you own can also have emotional drawbacks. People often gain a sense of pride, security, and stability from owning their home, which rentvesting might not offer. This emotional aspect can make rentvesting less appealing, despite the on-paper logic.
Overall, rentvesting is an innovative approach to property investment that offers flexibility and the potential for significant financial gains.
It can be particularly effective for those looking to get a foothold in the property market, without compromising on current living standards or lifestyle preferences. However, it’s important to weigh the emotional and logistical considerations of not owning your residence.
Like any investment strategy, rentvesting requires careful consideration of your own situation and goals.
Want to discuss this further?
For expert guidance in property strategy, and what it could mean for you as a property investor, book in for a free consultation to make informed decisions, tailored to your investment goals. Don’t let affordability challenges hinder your success. Act now with Search Party Property!
