The Hows and Whys of Rentvesting - searchpartyproperty

The Hows and Whys of Rentvesting

There’s a stigma about renting, but slowly yet surely we are (thankfully) shedding ourselves of this misguided view. Renting conjures an image of stagnation, of treading water, but it can provide a solid living option in a desirable area that in turn partners well with another investment (or several). Especially for those who are just getting started on their first investments. This act, of renting one’s own primary property whilst buying and investing in property elsewhere, is what has come to be known by the snappy moniker of ‘rentvesting’.

With year-over-year increases of property prices in Australian cities, many of which sit comfortably amongst the world’s most livable cities, it’s no wonder renting has become more popular. Whilst the property cycle appears to have reached a peak, with prices plateauing somewhat, any sort of significant drop has been deemed highly unlikely for the time being. There are perceptions that this trend towards renting is the death knell of the great Australian dream of home ownership but I see it more as a shift that allows for the emergence of different methods towards the same end. Joint-ownership, fast property flipping and of course, rentvesting. Recent studies have shown that achieving home ownership through the old sweat and tears methods of scrimping, saving and piling up a mortgage can take up to and even exceed fourteen years. Not to mention that the longer you spend saving for a deposit, the harder it’s going to get. Higher capital growth means owner-investors are seeing greater returns whilst the buyers only face greater hurdles. Get on the side of the investors! Changing, less buyer friendly markets require more daring and creative strategies. Rentvesting can be not only a smarter method of owning and investing in property but a lot quicker too. Why spend years crawling toward 5% genuine savings when you can be owning, investing and growing your property portfolio from the get-go?

Speaking of that initial 5%. That little number is what taints renting for so many. However, some lenders can in fact use your rental history as a substitute for 5% genuine savings towards a purchase. Rent money is not money that you’re just throwing into a hole, a strong rental history is a useful tool in your arsenal when wielded properly. You just need to find the right lenders.

Official estimates for the number of rentvestors in Australia don’t exist as of yet. The only overwhelming agreement among surveys that have attempted to establish the demographics of rentvestors is that there are already a great many of them, especially in urban centres, and the total is only climbing. The age demographics are less clear, and whilst it makes sense that rentvesting proves popular among first time buyers in their 20s, older investors still make up a sizable chunk of the market according to a number of studies. Rentvesting can provide a compelling option for those who no longer need a large property, such as parents whose children have moved away. Taking as an example a four person family, two parents and two children. If the children have moved out and the parents have remained in the workforce, rentvesting can allow the parents to downsize, perhaps to an inner-city apartment that is more convenient to their work life, whilst retaining a larger property. Either simply as a means to generate income or as a nest egg to be utilised after retirement. On the flip side, younger parents with younger children will require stable access to a school, and the instabilities that come with renting can make this difficult. LJ Hooker, a property firm, that have in fact trademarked the term ‘rentvestor’, have published their own early research on rentvesting. They found that not only are the majority of rentvestors between the ages of 35 and 55, but that 38% of rentvestors have a combined household income of below $100,000. As I said before, the numbers are extensive or in depth, but if these are anything to go by then rentvesting isn’t the sole domain of the young or wealthy.

Money talks. The financials of rentvesting are actually relatively clear cut. Rent prices across the board are, unsurprisingly, below those of mortgage repayments. A strong rental history can, as aforementioned, be turned into a deposit with the right lenders. With astute use of negative gearing, wherein a savvy investor can utilise tax benefits to generate a net gain over the upkeep cost of an investment property, rentvestors can turn a profit through their craft. Tax benefits are more in the favour of rentvestors than ever before. You won’t have to do a whole lot of work to calculate if rentvesting is going to be financially viable for you.

There are rumblings however, of the long term market repercussions of rentvesting. Particularly in Sydney. With a spike in popularity, it’s been speculated that rentvesting has the potential to create a ‘city of landlords’ and pass the struggles of first time home ownership onto the next generation. By and large, it’s a somewhat abstract moral quandary based largely on long term speculation. We’re talking about predicted repercussions for 30-40 years down the line. Although it does raise a few interesting points of concern. Foremostly whether the popularity of rentvesting may be its undoing, but also draws attention to the emotional importance of home owning. Whilst rentvesting can be a great opportunity, it still requires an affinity or at least tolerance, of rental living and all that comes with it. Living in rented housing is more flexible and cost effective, it lets you live where you want to live. However it sidelines the personal touch that many long so achingly for. Much of the unfavourable press regarding rentvesting comes down to those who see it as flying in the face of meaningful ownership. Rentvesting is a detached, though savvy, approach to investment and home ownership. I urge you though, to consider that it may still be the most effective means to make ownership dreams a reality. It’s a brave new world, and brave new methods are needed.