‘Rentvesting’ – the ‘buzz word’ you may have heard of recently, but what does it mean?
In this blog we take a deeper look into Rentvesting, outlining what it is, how it looks in practical and number terms, and how to get started – so you can understand if it’s a suitable investment strategy for you.
Firstly, what is it?
Rentvesting is simply where you choose to continue renting your living accommodation, and purchase only to invest.
We first saw it as a trend in the southern states where buying your own home was proving incredibly difficult for first home buyers, due to the sharp and continuing rise is property prices.
The difficulty in purchasing in these markets is two-fold:
Saving for a deposit – The higher the price tag on the property, the more your minimum 5% deposit and costs is driven. Without extremely careful budgeting and frugal living, saving for a deposit and costs can be hard work! And just when you think you’re getting somewhere, the prices go up AGAIN, and you have to save still more!
Affording the loan – Even if by hard work and saving, help from family or some other small miracle, you do manage to scrape together the deposit for your dream pad, you then need to have the income to support the loan you need to borrow for the balance – the size of your deposit doesn’t impact how much you can borrow, that’s down to how much you earn and any other commitments you currently have, such as a credit card, car loan, and basic living expenses.
So, if you can’t make the deposit or get a loan for where you want to buy, look for somewhere cheaper, right ?…
”But hang on”, I hear you say “I don’t want to live out in the boonies! That’s all my budget will stretch to…but I love having my cafes and trendy restaurants nearby, and being 5 minutes from the CBD…I’m young, I’m not willing to compromise my lifestyle that much yet!”
You wouldn’t be alone in thinking this way – Yes, you want to buy a property. No, you don’t want to compromise your lifestyle. I get that!
And here’s where Rentvesting was born…
You continue to rent where you WANT to live, while buying where you can AFFORD to buy. The sweet spot is in ensuring you look for that cross section of where you can afford, AND that holds appeal for other renters, who will be your tenants. Therefore you might focus on an outerlying suburb that may not have the lifestyle factors YOU want, buy may have excellent transport, schools and shopping centre facilities – perfect for young, growing families? Many of those outerlying suburbs are also experiencing solid capital growth too, making them sound long term investments.
So, there’s a snapshot of what it means to Rentvest.
In my next Blog, I’ll dig a little deeper into the numbers, and look at some examples using the Brisbane market.
Excited about the prospect and eager to know more? You can ask questions or make comments below or just give me a call if you want to have a chat.