What It Means to Be a Rentvestor: A Modern Approach to Property Investment

In the world of real estate, a relatively new concept has gained popularity in recent years – the rentvestor. A portmanteau of “renting” and “investing,” being a rentvestor means renting the property you live in while simultaneously owning an investment property elsewhere. This approach to real estate investment is increasingly becoming a strategy for many young Australians, particularly in the context of rising property prices in major cities. But what exactly does it mean to be a rentvestor, and why are so many people choosing this path?

This article will delve into the key elements of being a rentvestor, exploring the benefits, challenges, financial implications, and the reasons why this trend is gaining traction in the housing market.

The Concept of Rentvesting

At its core, rentvesting allows individuals to live where they want while owning an investment property in a more affordable or strategically beneficial location. For many, this means renting in an area close to work, lifestyle amenities, or family, while purchasing a property in a location where prices are lower, yielding better returns on investment.

For example, you might rent a modern apartment in a vibrant suburb of Melbourne or Sydney while owning a property in a regional area or outer suburbs where housing prices are more affordable. In doing so, you benefit from capital growth and rental income from the investment property while still enjoying the lifestyle that renting provides.

Why Rentvesting?

There are several reasons why people are choosing to become rentvestors. The first and perhaps most compelling reason is affordability. Housing prices in major urban centres have skyrocketed in recent years, making it increasingly difficult for first-time buyers to afford a home in these areas. Rentvesting provides a way to enter the property market without having to save a massive deposit for a property in a high-priced location.

Additionally, many people, particularly younger generations, prioritize lifestyle over property ownership. Renting allows them to live in desirable areas near their workplace, social life, and other amenities. However, by investing in property, they can still grow their wealth through real estate, enjoying the benefits of homeownership without sacrificing their lifestyle preferences.

Another advantage of rentvesting is flexibility. Renting means you aren’t tied to one location, and you can move if your circumstances change, whether that’s for work, family, or personal reasons. At the same time, owning an investment property allows you to benefit from potential capital appreciation and rental income, providing financial security and long-term wealth-building opportunities.

Financial Benefits of Rentvesting

Rentvesting can offer several financial benefits, particularly when compared to buying and living in your own home. Here are a few key financial advantages:

1. Lower Entry Costs: In many cases, the property you buy as an investment will be in a more affordable area than where you would want to live. This means a lower deposit requirement and potentially less time spent saving up.

2. Tax Benefits: Rentvestors may be eligible for certain tax deductions on their investment property, such as claiming expenses related to property management, maintenance, and depreciation. Negative gearing – where the rental income doesn’t cover the property’s expenses – can also provide tax benefits, reducing your taxable income.

3. Capital Growth: If you choose your investment property wisely, it may experience capital growth over time, increasing its value. This can help build equity, which you could eventually use for further investments or as part of your retirement plan.

4. Rental Income: While you are paying rent to live in your chosen area, you are also earning rental income from your investment property. Ideally, this rental income will cover the mortgage payments and property-related expenses, allowing the property to “pay for itself.”

5. Diversification of Assets: By renting where you live and owning an investment property, you are diversifying your financial portfolio. You are not reliant solely on the value of your home for your financial future; instead, your wealth is spread across different investments.

Challenges of Rentvesting

While rentvesting offers many benefits, it’s not without its challenges. Here are a few things to consider before diving into the rentvestor lifestyle:

1. Paying Rent and a Mortgage: As a rentvestor, you will be paying rent on the home you live in while simultaneously making mortgage payments on your investment property. If your investment property isn’t generating enough rental income to cover its costs, this can put a strain on your cash flow. It’s essential to ensure that your finances are in good shape and that you have a solid plan for managing both expenses.

2. No First Home Owner Grants: In Australia, first-home buyers may be eligible for grants or stamp duty concessions, but these benefits typically only apply to owner-occupiers. As a rentvestor, you won’t be able to take advantage of these incentives unless you eventually move into the investment property as your primary residence.

3. Tenant Risks: As with any investment property, rentvesting comes with the risks associated with being a landlord. This includes the possibility of vacancies, difficult tenants, or unexpected maintenance costs. It’s essential to have a contingency plan in place for when things don’t go as expected.

4. Missed Emotional Connection: For some people, owning their home is an emotional milestone and part of a long-term dream. Rentvesting may not provide that same sense of ownership, as you are essentially living in someone else’s property while owning an investment property elsewhere. This can be a challenge for those who value the emotional satisfaction of owning the home they live in.

How to Succeed as a Rentvestor

Rentvesting can be an excellent strategy for those who want to get into the property market while maintaining a flexible and desirable lifestyle. However, to succeed as a rentvestor, careful planning is essential. Here are some tips for making the most of the rentvesting approach:

1. Choose Your Investment Property Wisely: The success of rentvesting largely depends on the property you purchase. Look for areas with good rental demand, potential for capital growth, and low vacancy rates. Research the local property market and consider working with a mortgage broker or real estate professional to guide your decision.

2. Manage Your Cash Flow: It’s crucial to have a clear understanding of your income and expenses as a rentvestor. You’ll need to budget for both rent and mortgage payments, as well as any additional costs associated with the investment property, such as maintenance, property management fees, and insurance.

3. Build a Buffer: Property ownership comes with unexpected expenses, such as repairs, vacancies, or interest rate rises. Building a financial buffer – typically 3-6 months of expenses – can help you manage these surprises without financial strain.

4. Consider Long-Term Goals: Rentvesting is a strategy that can offer both lifestyle benefits and wealth-building opportunities, but it’s essential to consider your long-term goals. Are you planning to eventually buy a home to live in? Do you want to grow your investment portfolio further? Having a clear plan will help you make decisions that align with your future objectives.

Conclusion

Being a rentvestor offers the best of both worlds for many people: the flexibility of renting where you want to live, combined with the financial benefits of property ownership. While it’s not without its challenges, rentvesting is a smart way to get into the property market, particularly in an era of high housing prices. By carefully choosing your investment property, managing your cash flow, and planning for the future, rentvesting can be an effective way to build wealth while enjoying the lifestyle you desire.

As the property market evolves, rentvesting is likely to continue growing in popularity, providing a viable alternative for those who want the freedom to live where they please while securing their financial future through real estate investment.