Have you noticed rentvesting has become quite the buzzword in recent times? It pops up in articles about housing affordability, in investment newsletters and in the blog posts of buyers’ agents and mortgage brokers.
So what is it exactly?
Basically rentvesting is when a property investor buys an investment property and continues renting a home to live in. What people find is that in most cases it’s actually cheaper to rent your lifestyle than to own your lifestyle. This is never more obvious than when interest rates are ratcheting up and you quickly discover that renting delivers you more bang for your buck. (On the flipside, when interest rates are at super-low levels it can be cheaper to buy than rent). Rentvesting has become an increasingly popular property investment strategy for Australians chasing both lifestyle and financial flexibility.
The opposite of rentvesting is investing in your own home – you buy it, you move in and you chip away at the mortgage.
There’s no denying the emotional satisfaction that comes from being an owner-occupier. The emotional pull of living in your own home is hard to ignore, even harder if we have a partner desperate to live in their own place. You can’t underestimate how powerful those emotions can be.
Renting simply doesn’t give you that feel-good factor of being able to paint the walls bright yellow or rip up the shag pile and install engineered floors.
But does rentvesting make more financial sense? I reckon there are definitely benefits to putting your own home on hold.
So what are the pros of rentvesting?
Lifestyle leverage
Rental property returns generally work on a sliding scale: The more expensive a property is, the lower the rent yield. This is because the demand for high-end rental property is small compared to the demand for mid to low-end homes.
Even if your budget extends to your dream home in your dream suburb, you may still end up with more money in your pocket if you rent your dream home and invest in the kind of property in high demand from tenants. I’m talking property at the more affordable end of the market where capital growth is more consistent.
Meanwhile you can choose a rental based on where you work or where your family and friends live.
Maybe you’re keen to be close to good schools or hospitals, or within easy reach of lifestyle amenities like beaches, cafes and parks. Maybe you’re after a water view or a resort-style apartment with access to a pool and gym.
Renting also gives you more flexibility. You can choose flatmates, move with a job or move to experience a new city.
For most of us, you get a whole lot more choice as a renter than you do as an owner-occupier buyer with a budget. Rentvesting allows you to separate your lifestyle choices from your investment decisions.
Increased serviceability
If you choose to be a renter rather than an owner-occupier, you’ll automatically increase your serviceability. The banks will see you have less money going out the door than other mortgaged-to-the-hilt borrowers, giving you the potential to put that differential into savings or investment (just make sure you don’t spend your savings on expensive holidays, or buying the biggest TV on the market). Improved borrowing capacity can help rentvesters grow a property portfolio faster.
Greater choice
Rentvesters automatically give themselves a bigger pool of investment properties to choose from because they’re not limited by their own lifestyle wishlist. This means you can target suburbs with clear growth potential.
Buyers should focus on areas with low vacancy rates, good yields, a diverse economy and good infrastructure (public transport, schools, shops and health care).
You can also hunt for property with potential to value-add. A renovation? A granny flat? A sub-division? All these options are on the table.
If you're looking to better understand property investment strategies and how they can support long-term financial freedom, our free 7 Step Development FORMULA course is a great place to start.
Learn about landlords
They say if you truly want to understand other people, you need to walk a mile in their shoes. As a renter, you’ll quickly get an understanding of all the benefits and challenges that come hand-in-hand with being a tenant. That means you’re more likely to be a good landlord, which in turn means you’re more likely to have happy tenants who pay their rent and stay for the long haul.
Financially it really does make more sense to rent where you live and invest where you can maximise your return, but of course human nature doesn’t always follow the rational path.
If you intend to rentvest you need to have the strength to stay the course. It doesn’t need to be forever, but it can deliver outright home ownership faster than if you do it the other way around.
So what is it exactly?
Basically rentvesting is when a property investor buys an investment property and continues renting a home to live in. What people find is that in most cases it’s actually cheaper to rent your lifestyle than to own your lifestyle. This is never more obvious than when interest rates are ratcheting up and you quickly discover that renting delivers you more bang for your buck. (On the flipside, when interest rates are at super-low levels it can be cheaper to buy than rent). Rentvesting has become an increasingly popular property investment strategy for Australians chasing both lifestyle and financial flexibility.
The opposite of rentvesting is investing in your own home – you buy it, you move in and you chip away at the mortgage.
There’s no denying the emotional satisfaction that comes from being an owner-occupier. The emotional pull of living in your own home is hard to ignore, even harder if we have a partner desperate to live in their own place. You can’t underestimate how powerful those emotions can be.
Renting simply doesn’t give you that feel-good factor of being able to paint the walls bright yellow or rip up the shag pile and install engineered floors.
But does rentvesting make more financial sense? I reckon there are definitely benefits to putting your own home on hold.
So what are the pros of rentvesting?
Lifestyle leverage
Rental property returns generally work on a sliding scale: The more expensive a property is, the lower the rent yield. This is because the demand for high-end rental property is small compared to the demand for mid to low-end homes.
Even if your budget extends to your dream home in your dream suburb, you may still end up with more money in your pocket if you rent your dream home and invest in the kind of property in high demand from tenants. I’m talking property at the more affordable end of the market where capital growth is more consistent.
Meanwhile you can choose a rental based on where you work or where your family and friends live.
Maybe you’re keen to be close to good schools or hospitals, or within easy reach of lifestyle amenities like beaches, cafes and parks. Maybe you’re after a water view or a resort-style apartment with access to a pool and gym.
Renting also gives you more flexibility. You can choose flatmates, move with a job or move to experience a new city.
For most of us, you get a whole lot more choice as a renter than you do as an owner-occupier buyer with a budget. Rentvesting allows you to separate your lifestyle choices from your investment decisions.
Increased serviceability
If you choose to be a renter rather than an owner-occupier, you’ll automatically increase your serviceability. The banks will see you have less money going out the door than other mortgaged-to-the-hilt borrowers, giving you the potential to put that differential into savings or investment (just make sure you don’t spend your savings on expensive holidays, or buying the biggest TV on the market). Improved borrowing capacity can help rentvesters grow a property portfolio faster.
Greater choice
Rentvesters automatically give themselves a bigger pool of investment properties to choose from because they’re not limited by their own lifestyle wishlist. This means you can target suburbs with clear growth potential.
Buyers should focus on areas with low vacancy rates, good yields, a diverse economy and good infrastructure (public transport, schools, shops and health care).
You can also hunt for property with potential to value-add. A renovation? A granny flat? A sub-division? All these options are on the table.
If you're looking to better understand property investment strategies and how they can support long-term financial freedom, our free 7 Step Development FORMULA course is a great place to start.
Learn about landlords
They say if you truly want to understand other people, you need to walk a mile in their shoes. As a renter, you’ll quickly get an understanding of all the benefits and challenges that come hand-in-hand with being a tenant. That means you’re more likely to be a good landlord, which in turn means you’re more likely to have happy tenants who pay their rent and stay for the long haul.
Financially it really does make more sense to rent where you live and invest where you can maximise your return, but of course human nature doesn’t always follow the rational path.
If you intend to rentvest you need to have the strength to stay the course. It doesn’t need to be forever, but it can deliver outright home ownership faster than if you do it the other way around.
