One of the key findings of the 2019 Property Investment Sentiment Survey was that 16% of those surveyed are rentvestors. The survey also found that almost half of the respondents would consider this tactic as way to get into the property market.
So what is this trendy-sounding strategy?
Rentvesting is a method of investing where an investor buys a property in a place they can afford to buy, while they continue to rent where they want to live. It may allow an investor to continue living in a place where a home might be out of his or her budget, while holding a property in a location that suits their financial position.
It isn’t quite something new, according to Your Investment Property Magazine editor Sarah Megginson.
“I think this idea of rentvesting has been around for a while, but in the last few years we've really formalised it as a strategy, and I think people are more strategic about it,” she says.
It may be ideal to consider this strategy whenever you feel like you are comfortable delaying homeownership to reach your investment goals, explains Let’s Get Real author Luke Harris.
“Rentvesting involves renting when you could possibly buy a place to live in, so it’s a form of delayed gratification. Of course, this can be uncomfortable, and renting gives a little less certainty than buying as an owner-occupier. Not all rentvestors see that as a bad thing, however,” he says.
The benefits of reinvesting
This strategy may allow you to enter the property market by purchasing in an area you can afford, providing you with a head start to reach your investment goals.
Rentvesting is a bit like being forced to saved, according to Harris.
“The number one advantage for me is that it’s like a forced saving, in that having an investment property whilst you rent focusses your attention on wealth creation rather than buying expensive things for your own home,” he explains.
It may give you an opportunity to live in places where buying isn’t quite ideal because of sky-high prices. You might get to take advantage of the location without the long-term commitment on a mortgage. You may also build equity with the investment property you bought.
For instance, the extreme costs of properties in Sydney and Melbourne have caused people to consider alternative routes to enter the property market. An ideal to do just that is through rentvesting, according to realestate.com.au Chief Economist Nerida Conisbee.
This strategy may also have some tax benefits.
“Of course, your own home is not tax-deductible, and so rentvesting may give you tax benefits that you wouldn’t otherwise get which gives you the chance to build your portfolio faster,” Harris mentions.
Downsides
As with any investment strategies, there are risks involved in rentvesting – the biggest being the possibility of selling or moving into your investment property from time to time.
“The problem with that is that you may need to move! To a lot of people that can be fun and a chance to try a new street or suburb, but as you get older people are less likely wanting to move every time a lease expires," Harris says.
A possible solution is to try and negotiate a longer lease.
“Or speak with the property manager about the intentions of the owner and if they plan on selling or doing anything else that may affect you staying on for a longer term — if of course, that is a concern to you,” he adds.
If you’re a budding investor who also wants to purchase their first ever home, rentvesting may also disqualify you for first-homebuyer grants.
Is it for you?
This strategy may work for almost anyone. However, it is most suited for young individuals, couples, or families wanting to start their investment portfolio, according to OpenCorp director Cam McLellan.
This sentiment is echoed by Harris.
“If you are looking to settle down, have a bunch of kids and not move for 10-20 years, then rentvesting may not be the right strategy for you. If you are young and mobile and are happy to rent whilst you build the portfolio of your dreams, then perhaps that is a better outcome,” he says.
In essence, rentvesting may work for you if you prefer the financial benefits of investing in a property while renting in a quality home over paying for a mortgage in a location that you may not find appealing.
To achieve a great return on investment, there are many factors you must consider such as the location of your property investment and where you choose to rent. It is also important to consider mortgage repayments and the median rental prices in similar properties in your investment area.
“Market, Area and Property (M.A.P) are three major factors to (consider) when considering your rentvestment property. A successful rentvestor will take their time to research the market and scour their designated areas until the right property appears, with the perfect balance of affordability and potential to grow,” McLellan says.
Rentvesting may seem like a new trendy investment tactic that investors should do for fear of missing out, but if you have any hesitations about this strategy (or any other strategy, really), it’s best to put it on hold. Don’t be swayed by its cool-sounding name and immediately hop on board. Consider seeking help from a professional to ensure that you’d get your money’s worth and avoid not-so ideal situations.
