What is “rentvesting” and why is it the new black?
So, you want to get into the booming property market to secure your financial future, but you also want to keep your job and lifestyle in an area where you can only afford to rent. So how do you choose between buying a house and living where you want to live? It’s a tricky dilemma. What if you didn’t have to choose? That’s why a growing number of people who buy affordable houses in Victoria are opting to rentvest.
Rentvesting is exactly what it says on the tin – investing in property while you’re renting in another location in which you’d prefer to live. The idea is that the rent from your tenants will cover most, if not all, your mortgage costs. You’ll be growing an asset without having to live somewhere you don’t want to. If you explained rentvesting to someone a generation ago, they would have had spat out their ginger wine. The old school wisdom about the ‘right’ way to buy property was that you should:
- Stop renting as soon as you can
- Get a mortgage where you’re happy to settle down, and
- Only think about an investment property when you’re on your way to paying off your home.
Rentvesting is a strategy that tears this rulebook into shreds and, for a lot of first home buyers, it’s a way to resolve their conflicting needs.
So, what’s changed?
The Herron Todd White Residential Property Report (April 2017) found that one in five first home buyers in Victoria are rentvestors, not owner-occupiers. Reasons include:
- The property market continues to boom, so it’s better to invest sooner rather than later
- Skyrocketing home prices in Melbourne’s inner-suburbs make it hard to buy a first home there, but many young people have jobs, friends and lifestyles they’re understandably reluctant to move away from
- Victoria’s policy landscape still favours investors, and there are generous tax incentives in place for you to become one.
Weighing up the pros and cons
Rentvesting can have drawbacks. Like any investment strategy, it’s not without risks. For instance, you might find yourself in hot water if you can’t find a tenant, as you’ll have both a lease and mortgage on your hands. Plus, there are perks to living in your own home –and you might get sick of renting quicker than you think. But if flexibility’s what you’re after, rentvesting could be the way to go. You’ll have more opportunity to move around and travel than if you became an owner-occupier. And from a financial perspective, it’s a lot easier to sell or optimise your investment when you’re not already living in it.
Want to find out more? Speak to one of our friendly experts today. Tick Homes offers incredibly affordable, quality homes that are perfect for rentvestors. Simply buy, build, then rent out – and where you choose to live is up to you!