What Is Rentvesting? Could it Help You Get into the Property Market Sooner?

If you love living close to the city, near the beach or in an established suburb close to family and friends, but buying there is outside your current budget, that doesn’t necessarily mean you have to give up on entering the property market. I help many first home buyers take their first step into property, but there are times when rentvesting might be a better option.

What is rentvesting?

Rentvesting is buying where you can afford and continuing to rent where you want to live. In some circumstances, it can be the most practical way to get into the property market sooner and start building equity, while maintaining your work and life rhythm where you live.

For example, you may currently rent in Preston or Thornbury but find that purchasing the type of home you want there isn’t financially achievable. Instead of waiting several more years, you can purchase an affordable investment property in another suburb or regional area with good long-term potential.

You continue living where you want, while your investment property is rented to tenants who contribute towards the cost of holding the property.

It’s not the traditional path to home ownership, but for some people it can be a smart first step.

What are the benefits of rentvesting?

One of the biggest advantages is that you enter the property market sooner.

Rather than spending years trying to save a larger deposit while property prices potentially continue to rise, which means saving even more of a deposit, you can start building equity in an asset you can afford today.

Rentvesting can also give you greater flexibility. You might want to live close to work, or have the ability to more easily move to other locations.

Over the longer term, if your investment property increases in value and you reduce the loan balance, you can build equity that could potentially help you purchase another investment property or, eventually, the home you want to live in.

What do you need to consider as a rentvestor?

Rentvesting isn’t automatically the right strategy for everyone. Before buying, I encourage clients to look beyond the purchase price so that they understand the complete financial picture.

You’ll need to consider your deposit, borrowing capacity and loan repayments, along with costs such as rates, insurance, property management, repairs and maintenance. There may also be periods when the property isn’t tenanted.

You also need to remember that you’ll still be paying rent for the home you live in.

There can be tax benefits associated with owning an investment property, so it’s important to speak with your accountant or financial adviser about your individual circumstances.

Also, choosing the right rentvesting property is important. Don’t buy somewhere simply because it’s cheap. The quality of the property, location, local demand and its longer-term prospects are vital to building equity.

Could Rentvesting work for you?

If you’re frustrated because you can’t currently afford to buy where you want to live, don’t assume property ownership is out of reach. But before deciding whether to rentvest, buy a home to live in or wait a little longer, let’s establish what you can realistically afford.

Together we’ll assess your borrowing capacity, which includes your income, deposit, existing debts, credit card limits, living expenses and overall financial position. We can then identify whether there are practical steps you can take to improve your borrowing power and decide whether rentvesting is the right step for you before applying for a loan.

Let’s start with a conversation about what’s possible for you. Call me on 0430 511 500 or email glen@keystonemortgagebrokers.com.au to arrange a complimentary 15-minute strategy session.