Rentvesting is a strategy used for people who choose to rent where they desire to live, while investing their money in property elsewhere.
In our article on price growth, we revealed that the Australian residential property market has grown by a massive 412% over the last 25 years; representing an annual average of 6.8%.
These growth rates are expected to continue, bringing with them heightened house and unit prices.
The rapid increase in housing pricing, particularly in Sydney and Melbourne, has naturally increased the interest for many to adopt the rentvesting strategy.
For example, if you wanted to purchase a house in Sydney, but the sale prices in the selected area exceeds your budget. The rentvesting strategy would enable you to rent a house in that area you desire and then purchase an investment property in a suburb where prices remain affordable.
The purchased property can then be rented out to assist with covering the rental payments required for your new place of residence. This strategy will also allow you to build your investment property portfolio for the future.
With everything in life, both options come with their own pros and cons. Careful consideration must aways be taken.
Rentvesting Benefits
Freedom. Enabling you to live in the suburb you desire with the lifestyle benefits that come with it.
Flexibility. You are given flexibility with your place of residence, meaning if you want to upgrade or down-size depending on your life circumstances.
Ability to enter the market sooner.
Development of wealth. Achieved through building your investment property portfolio.
Tax benefits. These benefits are on your investment property loan and can be claimed as a tax deduction.
Strategic investment selection. You can invest in an area that has capital growth prospects.
Rentvesting Negatives
You don't own your home. This can be difficult for those who want the emotional connection to their place of residence.
Ability to renovate your place of residence. This is capped as the place is not yours so minimal changes can legally be made.
Rent money is dead money. This is a fear some may have, however it's only a belief and isn't an accurate statement.
Is rentvesting for you?
There is a lot to consider, both the positives and the negatives, in selecting if the rentvesting strategy is right for you.
The decision comes down to your personal situation, lifestyle preferences, financial circumstances and long-term investment strategy.
A qualified professional would need to be engaged to assist you with the process and to help you determine your financial capabilities.
If you would like guidance on your investment strategy and figuring out if rentvesting is right for you, I'd be happy to discuss with you.
Warren Jacobs - Senior Property Investment Consultant at Meridian Australia
P: 0477 005 839