To buy or to invest: is that the (only) question?
By no means!
A third exciting option - rentvesting - could have you enjoying your buyer cake and eating investor opportunities too.
What is rentvesting?
This clever home-owning strategy gives buyers the best of both worlds.
You invest where you can afford to buy and rent where you want to live (but where you probably can't afford to buy).
Or, in other words, you can live in a (rental) house and in an area that suits you and your lifestyle while owning an investment property that suits your budget.
Another big bonus to this strategy is that the rent your tenants bring in from your investment property also cancels out the rent you need to pay to your landlord.
So, in simple terms, rentvestors are landlords and rental tenants simultaneously - while living in different houses.
Or, in other words, you're paying rent while also paying off a mortgage with the one financially cancelling out the other.
But why travel down both roads at the same time?
As Michael Yardney of Metropole explains:
"Rentvesting is a tactic that overcomes financial obstacles and exorbitant property prices, because you can buy in a location that fits your budget and then rent in a location that suits your lifestyle.
"It works because even though you’re renting, the property you buy is an asset that’s growing in value (assuming you choose a smart location) and being (in part) paid off by your tenant.
"Not only that, but you’re gaining equity that can launch you into other property purchases down the track, including (when the time is right) a home to call your own."
In other words, rentvesting can be a win-win situation - and not just for its financial benefits.
You may simply want to live in a nicer, more convenient area - but it's one you can't afford - or you prefer to rent for awhile for whatever reason.
This is when rentvesting is a great plan too.
And all this is why - particularly as prices continue to rise in several cities - many millennials are choosing to become rentvestors, rather than first-home buyer owner-occupiers.
Can rentvesting grow my wealth?
You still need to choose your investment property and rental home wisely and well.
But unlike pure renters, rentvestors can at least get their foot in the door of the property market and with luck, watch their investment property accrue wealth - even though they're still renting.
Of course, this investment property will need regular maintenance, and body corp fees and rates will need to be paid too so rentvesting won't suit everyone in every situation.
And of course, you'll still need the deposit to pay for this investment.
The strategy is certainly worth looking at though.
Is rentvesting right for me?
Financially-speaking, rentvesting works best for those wanting to buy, or live in, city suburbs with extraordinarily high prices.
If you're nodding your head already, then also ask yourself whether this ideal home would cost more to live in than rent.
For rentvesting to financially benefit you the most, the difference between mortgage repayments and rental repayments in your preferred house and location should be high.
If these repayments are similar, then rentvesting probably doesn't suit you and your situation.
After all, you want to make this strategy work for you and not the other way around!
You also need to consider the following pros and cons.
- You can live in your preferred area and home and enjoy the lifestyle you really want, regardless of your income
- Your home loan deposit may well be smaller than if you bought in your preferred area
- You have a foot in the property market and with luck, can watch your wealth grow via your investment property
- You have two homes for the price of one (kinda!) but your rental home will certainly have you enjoying less costs and fees such as body corp and maintenance
- Any rent or equity in your investment property can be put towards paying rent at your live-in rental home, or towards saving for a second home
- You need to simultaneously deal with landlord and rental tenancy issues and situations
- Your live-in rental home is less financially, and actually, secure
- Investment income can be unreliable ie if the property remains vacant for an extended period
- Home loan interest rates can be higher for investment properties
- You will need to still pay for your investment property's maintenance costs as well as rates, body corp fees, and similar
- First-home buyers may not be able to access first-home buyer grants and schemes if buying an investment property
- If you sell your investment property, you'll be liable for capital gains tax
We're here to help
Whatever home loan road you wish to take, we’d love to help you travel it!
We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan to help you keep more money in your pocket.
So, give us a call today at Lending Loop.