Rentvesting. It's a new trend in property investment / lifestyle.
Rentvesting is where a person buys an investment property in an area that they can afford and where the fundamentals are ripe for the home's investment potential, while the person rents somewhere they love, in a home they can afford. A typical scenario might be someone who wants to live in a 3 bedroom house, but they cannot afford to buy a 3 bedroom house, so instead they buy a 2 bedroom unit in a great area and rent it out, while they rent a 3 bedroom house where they want to live.
Other reasons to rentvest?
Rentvesting can allow people to make savvy investment decisions. Rather than purchasing the home you want - which may not have good property investment fundamentals - you can purchase a home that represents an excellent investment while you live where you want.
Some people rentvest for tax purposes as it allows you to purchase a home and tax deduct the mortgage interest, cost of repairs and maintenance, levies, council and water rates. Please seek advice from your accountant as to whether this makes good financial sense for you in your situation.
Purchase sooner. It generally takes less time (particularly if you work with a Buyer's Agent) to buy an investment property than the time it takes to buy a home to live in. This means that while striving to buy a home to live in, you lose the benefit of capital growth in a rising market.
Downsides to rentvesting
The main downsides to rentvesting are the downsides of being a tenant:
- Property inspections
- Lack of long-term security: your landlord may later decide to sell, move in or renovate and decline to renew your lease
Melissa Maimann is a licenced Buyer's Agent in Sydney. She assists home owners and investors alike. If you would like a confidential discussion about purchasing your next home or investment, don't hesitate to make contact.