Recent research has found that one in three property investors are now rentvesters. We look at the rise of this phenomenon and explore whether it’s right for you.
Rentvesting happens when you rent the home you want to live in while buying a more affordable investment property elsewhere, often as a stepping stone to your ultimate dream home. It has become an increasingly popular trend in Sydney’s property market, especially with the median house price hovering around $1.1 million.
We take a look at how it works and examine the pros and cons to help you decide if it’s right for you.
Rentvesting - The Figures
Research conducted by the Property Investment Professionals of Australia (PIPA) in 2018 found that 36 per cent of first-time buyers had opted to invest in property and continue to rent instead of buying a home to live in over the past 12 months.
Although there is a common belief that renting is always 'dead money', this really isn’t the case if you are renting as part of a sound investment strategy.
Is It Right For You?
As we've written previously in our article 'Could Rentvesting Be The Right Path For You', deciding if rentvesting is right for you will depend on your circumstances, including property prices and rents in the area you want to live in, and whether you’ve identified a strong growth investment opportunity.
Let’s say you’re considering buying a property around that average $1.1 million price point. Saving a 20% deposit would mean having $220,000 in the bank and then also covering stamp duty of over $45,000 and other purchasing costs. Your mortgage repayments could be upwards of $5,000 per month, not to mention the other costs of home ownership.
It’s possible you could rent a similar property for considerably less, giving you more money to save and invest into a less expensive property. And, if you buy to invest, many of your costs, including potentially the interest on your mortgage repayments could be tax deductible too.
Just keep in mind that there may be a gap between your rental income and the mortgage repayments on your investment that you’ll need to cover. Investment loans can also be more expensive, so you’ll need to shop around.
Benefits Of Rentvesting
Rentvesting effectively lets you ‘try before you buy’ in the area you want to live in without delaying getting your first foot on the property ladder. Meanwhile, you can keep saving for your dream home while your investment property is building wealth.
Renting offers the flexibility to move when you want and frees you up from the maintenance hassles and costs of home ownership. It also allows you to make a smart and strategic property investment decision without the emotional pull that can come from buying a home to live in. For example, if you identify an area that’s potentially high growth due to a new transport link or other major services in development, but which you don’t want to live in right now.
Downsides To Consider
The desire to own your own home can have a very strong emotional pull. Also, while you’re renting you won’t have much say over how your place is decorated or the appliances or fixtures and fittings in your home. You may even have to move if your lease comes to an end and isn’t renewed.
Still, these are only minor in the scheme of things and, if you’re prepared to put your head over your heart, rentvesting can be a sensible – and possibly even vital – step toward getting the home of your dreams.
Need More Advice On Rentvesting Or Buying Or Selling A Property?
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