Rentvesting: What is it All About?

Sep 13, 2017 (0) comment

If you’re planning on living in a city like Sydney or Melbourne, chances are you’ve asked the question: Will it be cheaper to rent, or buy a home?

Housing affordability has been one of Australia’s most widely discussed topics and is a real issue for many.

Prior to reading this you’ve likely heard the hype surrounding rentvesting but may have not quite grasped the full understanding of it yet.

Let’s take a look at what it’s about, why it’s attracting such significant interest and of course, our top pros and cons.

What exactly is the rentvesting trend?

Since the median house price for a Sydneysider painstakingly steadies at around $1 million, many are seeking alternative methods to boost their own affordability.

Breaking into the market as a first home buyer is seemingly impossible in capital cities, especially those with a desired preference of Sydney or Melbourne, until somebody struck upon an idea – rentvesting.

Rentvesting is when someone rents a home in their ideal location to live, whilst buying a generally less expensive or more consistently affordable property elsewhere as an investment.

For example, if your ideal location to live and work is in Sydney, you can rent an apartment there rather than buying it as its cheaper than taking on the mortgage. Meanwhile you could purchase a property in regional NSW and rent it out.

Why are Aussies doing it?

Put simply, the primary reason is due to lack of housing affordability in metropolitan areas of Australia. Regional and coastal locations for example may not offer career or education opportunities that our major cities do, where a million-dollar mortgage is seemingly impossible to warrant.

As always, there are fantastic benefits as well as a downside to the rentvesting trend. However, your individual financial situation is the biggest influencing factor in making the decision.

Pros of Rentvesting

  • You’re able to jump in to the property market earlier since a significantly smaller deposit is required.
  • You can live your dream lifestyle sooner.
  • Wealth building begins earlier in life – You’re already on your way to securing your family’s financial future, long before plans for it have even been established.
  • You’re technically saving for your future dream home – Let the investment property build its own value while living at your dream location.
  • Flexibility – Renting means you can change your living situation more frequently and less expensively according to your current circumstances
  • Tax benefits – Claim the interest on your investment property loan as a tax deduction while renting.
  • More investment choices – You’re able to select where to invest from a wider variety of options. If you’re currently living in your dream city, it creates the incentive to invest elsewhere.

Cons of Rentvesting

  • You’ve bought an investment first – Many will argue that it’s counter-intuitive to invest before purchasing a home prior.
  • The ‘dead money’ theory – Technically, you are still paying off someone else’s mortgage while renting which may deter many from rentvesting.
  • Never owning the home – Regardless of how long you live there, you’ll never own the home. People who easily get emotionally attached to a living space may not be comfortable considering rentvesting.
  • Relatively no flexibility – Depending on your relationship with your landlord, in most cases you can’t make the property you’re renting your own home like you could if you bought it.

Overall, there are both substantial arguments for and against rentvesting, meaning you’ll need to analyse and evaluate your own financial circumstances before taking any more steps forward.

Get in touch with Ethan today to discuss your personal circumstances and get an expert’s advice!

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