FYI - Rentvesting

So what is Rentvesting? Rentvesting can help an investor enter the property market without sacrificing your current lifestyle.

Rentvesting can help an investor enter the property market without sacrificing your current lifestyle.

As property prices continue to rise, purchasing a home in a highly sought after, or central area, is increasingly out of reach for the average buyer. This is especially true for residents of Melbourne or Sydney.

Many are therefore instead opting to rent rather than buy. This allows them to live where they like and enjoy an inner-city or beachside lifestyle of their choice. But for those who are still eager to enter the market, there is a way to get the best of both worlds.

‘Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location while continuing to live and rent in the area of your choice. In other words, rentvesting is a home-owning strategy where you rent a property to live in that’s right for your lifestyle, while owning an investment property that’s right for your budget.

As an example of how the market is evolving, rentvesting is now a popular wealth creation strategy, especially among the younger generation given the flexibility it provides in comparison to being an owner-occupier.

Many buyers are not keen on purchasing a primary residence that fits within their purchasing budget. Affordable properties may also come with commute to work or be far away from fun/lifestyle precincts. Rentvesting can provide rental income to cover the mortgage expenses allowing an investor to keep living the lifestyle they want.

But while this strategy may appear ideal to many, it’s not suited to everybody and takes some getting used to. For most Aussies, it is a relatively foreign way of thinking. The great Australian dream was always to buy a home on a decent sized block with a yard and do everything you can to pay it off as quickly as possible. But you could say that with property prices where they are, that's an outdated dream.

Rentvesting is the opposite of that quintessential Australian mindset. It takes being comfortable with and open-minded about 'good debt'. We typically view debt as an onerous burden and something that we need to shed as soon as is humanly possible. Rentvesting forces us to see debt almost as a transferrable asset that we use as a stepping to get into the next investment, and the next and so forth. Each time putting away a little more of the profit. Rentvesting also requires a fairly 'religious' adherence to a budget. It requires us to resist the temptation to rent the most beautiful or best located property you can afford. We need to exercise a bit of that 'all too hard to find' restraint and ensure that you have more money to service the loan on your investment.

Sometimes in order to get ahead, you need to reinvent the wheel a little (or a lot) and even though Rentvesting isn't the sexiest term - it can be a really great way to help secure your financial journey.

If you are keen to learn more about rentvesting and seeing if the strategy would work for you, get in touch with the team at CapStack.

Are you an investor looking to dip your toes into the market? Let us know!

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