Rentvesting is becoming a hot and trendy way to get into the property market in high surging areas like Sydney and Melbourne.
So, what is rentvesting? It’s certainly not a vest you hire for the weekend to accompany your weekend pub attire (insert laugh here). In all seriousness, it’s when people rent a home to live in and then purchase a property elsewhere as an investment. Hence the rent/investment coming together to form a new strategic way to get your foot into the property market, be it as an investor.
Let’s look at this from a very practical view point. If you want to live within 10km from most CBDs or enjoy lovely coastal views within Australia, you are looking at needing quite a hefty deposit given properties in Sydney and Melbourne are on the plus side of the golden million mark. Brisbane and even Perth will still see you fork out a large sum for the right home.
Given we are looking ‘practically’ at rentvesting, if I wanted to purchase a 2 bed 2 bath flat in Surry Hills, Sydney, I’d be looking at an average price range of anywhere from $1m to $2m, for this scenario let’s call it $1.5m including costs. I am needing my 5% deposit (in most cases) which equates to $75k plus costs (stamp duty etc.) so let’s round this up to $100k. As most teenage kids would say these days “$100k oh hell no”. Remember that’s just the deposit, not an easy amount of money to save, right?
What rentvestors can achieve is they can rent out a property in their ideal location and then purchase a cheaper property somewhere else, even interstate. If the investment property being purchased is then $400k a 5% deposit of $20k plus costs seems a lot more achievable. Agree that it is difficult saving whilst paying rent but it can be done and we are seeing it become a very tactical approach to purchasing real estate combined with living in the area you desire, it’s like having your cake and eating it too but why wouldn’t you eat your cake if it’s yours, who invented that saying anyway… I digress so back to the topic at hand.
As mentioned above getting into the property market sooner by only needing a smaller deposit is just one benefit. Another is living the lifestyle you want by renting property that you would more than likely not be able to afford to purchase outright. Given the objective when purchasing property for investment purposes is and should be long term growth this allows you to start building wealth and potentially kick start your investment portfolio. Renting does have the benefit of being flexible as well. In case you need to move due to work, family or you may want to open a soft serve bar in sunny Brisbane instead of all these retro yoghurt stores (apologies personal gripe) without the worry of added expenses like any legal costs or even stamp duty. You may want to consider putting some of those savings into hiring a good removalist though as I’m sure most of you would agree that it’s a bit of a pain in the rear packing up your house, I’d certainly rather be sipping espresso martinis near the beach whilst someone else is doing all the heavy lifting.
There are further benefits to owning an investment property like being selective in where you decide to purchase and this does not need to be within driving distance of where you live. No emotional aspect needs to be considered when purchasing your investment. You won’t be living in it so ensure you view it as a long-term business decision. Tax benefits are also a big plus in the way are tax laws are structured here in Australia. Always seek independent advice from an accountant who specialises in property investing to guarantee you get the right structure in place, especially if you are making the purchase with a partner. Income will play a determining factor towards percentage of ownership combined with the gearing aspect.
This lifestyle option allows you the ability to live the way you want now all the while building wealth through your investment with further opportunities to grow your portfolio dependent on market movements and generation of income.