What is Rentvesting?

We all know housing is getting trickier to buy closer to the city centre. And property values have given the stratosphere a nudge even allowing for the impact inflation and increased interest rates have had on housing prices.

As prices exceed the affordability of the average household, those average households are still looking to have the lifestyle and conveniences benefits associated with living in prime locations.
If your dream home consists of a three-bedroom home on a reasonable-sized block close to or within the city fringe, the prices are frequently high and may be out of your price range.
It’s a conundrum.


Rentvesting Defined

Enter Rentvesting.

Rentvesting refers to renting in your preferred location but using the difference between what it would cost you to own your own home in that location and the mortgage repayments on an investment property in another suburb.

In other words, Rentvesting is renting where you want to live and using a slice of your income to buy an affordable investment property usually in a capital city location.

How effective Rentvesting is, comes down to the difference between what you are forking out in rent compared to what you are paying on your investment mortgage.


Smaller Deposit

The need to save a deposit is why many young couples find themselves living at home with their parents. Many Aussies view a property as a desirable asset as, for investors, the rent can contribute to their passive income in retirement.

With Rentvesting, you still need to save a deposit. However, t that deposit is often smaller than the deposit banks demand to buy into a prime capital city location.

Instead of buying your expensive dream home, you buy a more modest property in a more affordable suburb. You rent the property you buy to help cover your rent payments. Later you have the option of selling the property and enjoying the capital gain or leveraging it to acquire another investment property.

A Rentvesting strategy allows you to enjoy the lifestyle you want now while building a property portfolio to secure your future.


Rentvesting Keeps You From Falling Behind In The Property Market

As Rentvesting allows you to buy a property purely as an investment, it can be an attractive strategy for people looking to get their foot on the property ladder.

This is because using a Rentvesting strategy, you can target properties that are significantly cheaper than your dream home. Hence, so you’re unlikely to have to save as much for a deposit.
Also, as the investment properties are usually cheaper, the twenty per cent deposit required to avoid expensive Lenders’ Mortgage Insurance is more likely to be within your reach, saving you money and holding out the opportunity to negotiate a better interest rate.

Done well, Rentvesting allows you to have a solid bricks-and-mortar investment while enabling you to live in the location you desire.


Final Observation

Rentvesting often suits younger people who find themselves ‘priced out’ of inner-city locations, single-parent households where location is important in raising a family and family households looking for a better location and a comfortable property to call home.