Rentvesting – What You Need to Know

Amid interest rate hikes and rising property prices, many first home buyers are weighing up the issue of lifestyle verses property ownership. However, the rentvesting strategy has allowed more and more Australians to get into the property market without sacrificing their lifestyle. In this article we explain what rentvesting is, the pros and cons, and whether this strategy is right for you.

What is Rentvesting?

Rentvesting is a strategy where you rent a property in a location that suits your lifestyle while purchasing an investment property in a more affordable area. This approach allows you to enjoy living where you want without sacrificing the opportunity to get into the property market.
With rising property price, rentvesting has become more and more popular amongst homebuyers, especially younger Australians in high-priced cities.

The Pros of Rentvesting

1. Lifestyle Flexibility:
   The main advantage of rentvesting is being able to live where you want without compromising on property ownership. You can enjoy the perks of living close to work, transport, schools, amenities and your social network.

2. Entering the Property Market Sooner:
   Instead of waiting until you can afford to purchase your dream home, the rentvesting strategy allows you to start building your property portfolio sooner. 

3. Building Wealth:
   By selecting an investment property in an area with good growth potential, you can build equity over time. This can help you grow your property portfolio or eventually buy a home in your preferred location.

4. Tax Benefits:
   Owning an investment property allows you to claim deductions on expenses such as interest on your loan, maintenance costs, and property management fees.

5. Diversify your financial strategy:
   Rentvesting allows you to invest in property while keeping your financial options open. Instead of locking all your resources into a home, you can diversify by building a portfolio of income-generating properties.

The Cons of Rentvesting

1. No First Home Buyer Benefits:
   As a rentvestor, you will not qualify for any first home buyer benefits such as stamp duty concessions, as these only apply to owner-occupied properties.

2. Dual Financial Commitments:
   Managing a mortgage on your investment property while paying rent can stretch your budget.

3. Tax Complexity:
   Managing an investment property can involve navigating complex tax rules and obligations.

4. Potential Market Risks:
   Property values in your investment location may not grow as expected, impacting your financial returns.

5. Property management and maintenance:
   Owning an investment property comes with ongoing responsibilities. You’ll need to manage tenants (or hire a property manager), cover maintenance expenses, and ensure the property stays rented to avoid vacancy periods.

Does Paying Off a Mortgage While Renting Make Sense?

Rentvesting isn’t a one-size-fits-all solution. Whether it works for you depends on your financial situation, lifestyle preferences, and long-term goals. Here are some factors to consider:

• Cash Flow: Assess whether you can comfortably cover both rental payments and mortgage repayments while maintaining a healthy financial buffer.

• Investment Goals: If your investment property generates rental income that offsets your mortgage, rentvesting can be a smart move.

• Market Conditions: Ensure your investment property is in an area with strong rental demand and growth potential.

• Discipline: Rentvesting requires a long-term mindset and disciplined budgeting to manage dual commitments.

Is Rentvesting Right for You?

Rentvesting suits those who:

• Want to enjoy living in vibrant, desirable areas without purchasing property there.

• Have a strong interest in property investment and building wealth.

• Are financially disciplined and can handle the dual responsibilities of renting and owning.

However, it may not be ideal if:

• You value stability and owning your home above other financial goals.

• You’re uncomfortable with the risks associated with property investment.

• Your financial situation doesn’t allow for additional commitments.

Take the Next Step

Rentvesting offers a real pathway to property ownership. Whether you’re exploring rentvesting or considering other strategies, having the right advice is crucial.
At Raiti Finance, we’re here to guide you through your property journey. We can help you find the right loan and ensure your finances are aligned with your goals.