Rentvesting: What is it, and is it a Smart Move?
Posted by Tristan Angelini on 23 August 2022
Investing can be daunting, especially if you don't exactly know what you want. Not only does it require some knowledge in the area you want to invest in – it does also need funds.
Let's say a hopeful investor wants to get into an investment property, but their funds are limited. What would be the best strategy to be able to build a property portfolio without sacrificing your available funds to get you through a few years?
There has been a growing number of investors popping up wherein they purchase a rental property as an investment while at the same time renting another property in which to live. They are unofficially called rentvestors or those who get into rentvesting.
What is rentvesting?
Just by looking at the word itself, you can kind of get an idea of what it is. It's a portmanteau of the words rent and investing. It is a home-owning strategy where you prioritize your lifestyle and your budget. Due to the rise in inner-city home prices, the rentvesting approach has become quite popular, especially among the younger generation buyers.
According to experts, young buyers nowadays choose to save money as much as they can by choosing to stay in the family home much longer or rent in shared housing. It's become more popular among the younger buyers to select locations that can cater to their lifestyle, like choosing areas close to amenities, beaches, parks, and cafes. Others do not like long commutes, so they decide to live in locations close to their workplaces and near friends and family.
Pros and cons of rentvesting
Rentvesting has both pros and cons that one must consider. Here are some things you should know.
- You can choose a location to your liking. You get to decide where you can afford to buy.
- You don’t have to spend much on maintenance costs. As a tenant, any issues in the place you are renting would be the agent’s job to organise repair depending on the rental conditions.
- You may be able to avail some deductions for the property expenses you spend, such as interests for loans, insurance, advertising, and depreciation costs.
- The income you gain from your rental property may be used to pay a mortgage on the property or even your own home rental costs. Either way, it is a win-win for you.
- If your investment property gets some value increases, you will be able to sell it at a profit in the future.
- Since you, yourself, are also renting, you may probably need to move if the owner decides to go in a different direction and change tenants or even sell the property. Rent could also increase depending on the owner.
- As the owner and landlord of a property, you will be responsible for all the maintenance costs and repairs. There are other fees to consider, like paying a leasing agent on top of the rent you’re paying for the house you are living in.
- If you decide to sell your investment property, you will need to pay tax on capital gains. This is not the case for owner-occupied properties.
- If your property decreases in value, you may probably have to see it at a lower price.
Is rentvesting a good idea?
Rentvesting is a long-term move. If you are thinking of doing this, that is the first thing you should understand. If you are expecting short-term gains, you must consider that there are costs to pay, like taxes and stamp duty. Ask yourself if you are really up for that.
The next thing you should do is to get professional advice. A financial planner could also help you out. Huge investments like this need proper guidance.
Is rentvesting a good idea? It all depends on your budget, the stage in your life, and the kind of lifestyle you aspire to have. If you are single and you want to get into the property market, and you know you can make a few adjustments to your lifestyle, rentvesting could be an excellent idea.