Rentvesting is a strategy that involves renting a house to stay in while you are purchasing an investment property elsewhere. Ultimately, it’s about being in the location that will suit your lifestyle – perhaps somewhere closer to work, or even a vibrant city – while buying real estate somewhere else, much cheaper or bound to give good growth.
The whole concept here is to get on the property ladder – building up your wealth in real estate without necessarily compromising a life of your choice.
This strategy has become increasingly popular among younger purchasers in markets such as Australia, where high housing prices in desirable inner-city suburbs make homeownership virtually impossible. Rentvesting allows people to reach their financial goals while still having the flexibility of renting.
The reason the new generation is connecting so well with rentvesting is multifactorial: many people just don’t see homeownership as such a big deal anymore because there’s a higher focus on lifestyle, travel, and freedom these days rather than location. Rentvesting taps into this more modern way of thinking.
Is Renting Better Than Buying in Australia?
Whether renting or buying a property is right for you depends on factors like:
- Your Financial Situation
- Personal Preference
- Long-Term Goals
Let’s break that down further:
Advantages of Renting
Agility
Sometimes, renting just enables someone to stay in areas they can not afford to buy into, like city centers or beachfront homes. This would be ideal for working professionals or people looking to relocate for convenience.
Lower Upfront Costs
Unlike buying, renting doesn’t require a large deposit, stamp duty, or other purchase-related expenses. You’ll only need to cover bond payments and moving costs, which are significantly lower.
Reduced Financial Risk
As a renter, you’re not exposed to the risks of fluctuating property values, interest rate hikes, or unexpected maintenance costs.
Advantages of Purchasing
Building Equity
Equity is how much of the property you actually own, and mortgage payments build equity when you own it – a potentially very powerful financial asset over time.
Stability
Homeownership can be stabilising: You’re not at the mercy of lease agreements, hikes in rent, and sudden eviction; it’s yours to fix up, yours to live in, yours.
Wealth Creation
Real estate in Australia has traditionally been considered a solid, long-term investment. Property ownership can also involve the realisation of a capital gain.
The Verdict
Renting will work out much better for people in search of lifestyle and flexibility, while buying can suit people focused on long-term financial stability and wealth creation. Rentvesting is somewhat a middle ground, trying to get the benefits flowing from both rentals and ownership.
Why is Rentvesting Bad?
Of course, it does sound alluring, but rentvesting doesn’t come without its drawbacks. Sure, it may provide an inlet into the property market, but it does not suit every person’s finances or lifestyle. Here is why:
1. Double Financial Burden
Rentvesting will leave you with two sets of financial responsibilities: one for paying rent where you stay and another for servicing the mortgage on the investment property. This can be extremely trying on a cash-flow basis, especially if there’s some emergent expense on the investment property, like a fix or repair, or decreased rental income.
2. Missed Tax Benefits on Your Residence
Homeowners in many countries benefit from tax breaks, such as exemptions from capital gains tax on their primary residence. As a rentvestor, your property is an investment, and any profits gained upon the sale of that investment create what is known as a capital gain. These tax implications will lower the overall financial benefit of your strategy.
3. Emotional Disconnect
Owning an investment property can often mean purchasing in an area that’s unfamiliar or not lived in. Because of this, the emotional distance can make it a little more difficult to stay invested. Potential problems, such as poor property management, troublesome tenants, or local market slumps, might be left unidentified or unresolved for much longer.
4. Market Risks
Rentvesting relies heavily on the performance of the real estate market. If the property you’ve invested in doesn’t appreciate as expected or experiences rental vacancies, your financial position could suffer. This is particularly concerning if you’ve stretched your budget to support this strategy.
While rentvesting will work for some, these possible downsides are important, weighed up against your financial goals and your risk tolerance.
Can You Still Make Money from Property?
Yes, you can still make money from property, but it will most surely be through some careful, well-researched planning and a realistic understanding of the market. Here’s how to go about property investment for profit:
1. Leverage Capital Growth
Growth in capital remains one of the most important fundamentals when it comes to property investments. Buying in areas of high demand – where infrastructure and a supply of jobs are well-developed – underpins long-term appreciation in any given property. This naturally encompasses key major cities worldwide such as London and New York, Lisbon, and Milan.
Those that are particularly promising include gentrifying suburbs and those that have planned developments.
2. Maximise Rental Yield
Getting consistent rental yields is another way of monetising property. A good rental yield will ensure that the property pays its mortgage and maintenance costs while putting more cash in your pocket.
3. Add Value Through Renovations
Strategic renovation significantly enhances a property’s value and its letting potential. Emphasise high-impact upgrades such as kitchen and bathroom improvement or the addition of modern amenities, which help both in the resale value of a property and its renting potential.
4. Choose the Right Loan Structure
The availability of loans at competitive rates of interest and their flexible terms can maximise your returns. Fixed or variable interest rates, offset accounts, and interest-only periods are crucial in optimising cash flow and general profitability.
5. Diversify Your Portfolio
Spread your risk through a range of properties in different locations or sectors – residential, commercial, or holiday rentals – as this allows you to tap into different market dynamics. Diversification helps you reduce the impact of localised downturns.
Risks to Consider
Property investment isn’t risk-free. Rising interest rates, economic downturns, or a poorly chosen location can erode profits. It’s essential to have a buffer for unexpected costs and stay informed about market trends.
If you’re interested in investing in a foreign country, Upscore’s Finance Passport is your key to securing favourable interest rates and comparing multiple lenders to ensure you get the best deal.
Conclusion
Of all the modern investment strategies, rentvesting is one that allows flexibility for renting while still offering investment potential in property ownership. While it is not for everyone, it still creates an avenue for building wealth that doesn’t sacrifice your lifestyle preferences.
Whether one should either rent, buy, or rentvest in Australia simply depends on your own unique situations and goals.
To the would-be investors in property, profound research and expert advice become quite vital. With due care and proper planning, property can still be a reliable route to financial growth, whether through being a homeowner, a rentvestor, or a traditional landlord.
