What Is Rentvesting?

These days, most property in the popular areas of major cities is unrealistically expensive and out of reach for many first homebuyers. Sydney’s Surry Hills, Melbourne’s Fitzroy and Brisbane’s New Farm are all super trendy precincts – but that’s exactly what makes properties there so damn expensive.

Potential homebuyers need to consider: Do we buy in a more popular area and take out a larger home loan? Or do we move further away, to a less popular suburb, to get more for our money?

Young investors are finding another way, however. The strategy of “rentvesting” allows homebuyers to purchase a property and, at the same time, live in the area they prefer. Sounds ideal, right? The key is purchasing an investment property while continuing to rent.

So what is rentvesting? It’s a playoff among the benefits – many who buy a property are keen to make it their home, which is understandable given the blood, sweat and tears that go into saving for that initial deposit. Whether rentvesting is right for a certain buyer depends on if they’re able to give up that homely feeling, and the absence of a pain-in-the-butt landlord.

Many have found it’s the right choice for them, with as many as a third of investors choosing to rentvest in 2016. A recent Ipsos poll prepared for Westpac showed that the people choosing rentvesting are mostly males (65%), born between 1983 and 1997 (61%) and living in metro areas (81%).

“The research shows that many young Australians are looking at savvy ways to get into the property market, showing that there’s still clear aspiration for home ownership whilst maintaining their lifestyle,” says Westpac’s Home Ownership spokesperson, Andy Wright, about the data.

Miriam Sandkuhler took this strategy 20 years ago when she bought her first property, as reported in The Australian. She wanted to live in the popular Albert Park suburb of Melbourne, which has easy access to both parks and beaches, but couldn’t afford it. She ended up buying a home in South Yarra as an investment property and rented in Albert Park. In the 20 years since, South Yarra has become one of the expensive and desirable areas young people want to live, meaning Miriam got a foot in the door at the right time.

If the rental income from your investment property is higher than the rent you pay where you live, you’ll get a sweet discount on your mortgage.

So how would you go about rentvesting? The process is similar to the purchase of a home. The most important thing is to take into account both your rent (outgoing) and your tenants’ (incoming), as well as your mortgage repayments. This is where the monetary benefit of rentvesting comes in – if the rental income from your investment property is higher than the rent you pay where you live, you’ll get a sweet discount on your mortgage. Plus – there are potential tax breaks you can get for owning an investment property, but do your research to see what you can get and when.

Looking further afield will help you find something more affordable too – homes in the suburbs will give you more for what you pay for them than those located in inner-city areas. Do keep in mind, however, that this will also likely mean that your rental yield will be lower.

Owning property and living in a trendy inner-city suburb? Sounds like having your avocado on toast and eating it too.

Rentvesting could be the key to finding a property to purchase within your budget, without compromising your lifestyle. Westpac provides loans for rentvestors to help you build your wealth.

Mitch Brook is Editor of The Cusp. Find him on Twitter at @MitchBrook or Instagram at @Mitch_Brook.