Rent where you love and still build your investment property portfolio.
That’s the premise of the growing property investment trend, ‘rentvesting’. With housing affordability becoming a barrier in many desirable suburbs, rentvesting is presenting a perfect opportunity for professionals, who want to stay within the city limits, to still enter the property market, with an investment property.
“The idea is you live where you’d love to live but may not necessarily be able to afford to buy. Then buy and build a property portfolio as investments and benefit from having tenants and tax rebates pay for these properties. This gives you freedom whilst being able to have your foot in the property door with other people helping you to pay it off,” explains Direct Investment Solutions consultant Deanne Carter.
Due to the returns that are provided with owning an investment property, including the rent and tax offsets, the practice of rentvesting won’t break the bank. In fact it can cost as little as a cup of take-away coffee a week. Here’s an example:
Don’s rentvesting story: An example of rentvesting
Don is renting in North Perth. It’s close to his work and has the social comforts he has come to appreciate. His current weekly rent is $365 (Source: REIWA) which Don finds more than comfortable.
One day Don would like to purchase a house, but cannot afford the median house price of $895,000 for a home in North Perth, or the deposit that he would need to take out that size mortgage.
Don’s alternative to enter the property market is to continue renting and invest in a property in a suburb he had the deposit to afford. In this case Don has found a house and land package for $387,929 (Source: REIWA) in Perth’s southern suburbs. With his 10% deposit he can afford to purchase this property while continuing to rent in North Perth.
Once he takes into account the rent and tax offsets he will get from the new investment property and balances this against the costs of loan interest, rates, insurance and property manager, he will only have to chip in an extra $3 per week to own this investment property in this case.
The key points to rentvesting
Rentvesting has been around for a while, but the concept can seem a little foreign to those who have been programmed to believe that renting is ‘dead money’ and owning your own primary residence is necessary to complete the Australian dream.
Rent money doesn’t have to be dead money
There is a common belief among first home buyers that rent money is dead money, however that is only true to some extent. If the equivalent funds are invested into property you could actually see a greater profit than investing in a single primary residence.
Understand the numbers
It is important that you are given the correct advice and understand the best ways to use rentvesting to build your property portfolio. In order for rentvesting to be effective you must examine the areas that will provide you with the rental returns and capital growth you are after.
Rentvesters need to understand that their investment property purchases need to be based on the figures and remove emotional considerations. Remember you are not going to live in this house, you are building it for tenants and future resale value only.
Think differently about your first home
There has been a misconception for a long time in Australia that renting is for people that can’t afford to buy a property. This is unlike European countries where only 50% of the population own their own homes.
Why wouldn’t you pay rent for a quarter of the price of a mortgage to live in the same suburb? For rentvesting to work you need to let go of your preconceptions and embrace the positive side of renting where you love to live.
At the end of the day, rentvesting doesn’t have to be a forever thing. It just offers you the opportunity to have a better lifestyle, while you are setting up a more profitable future.
Want to know more?
If you’d like to know more about Rentvesting, you can set up an obligation free rentvesting assessment with WA’s Investment Property experts at Ventura iD.