Coal Coast Mag - Rentvesting
'Rentvesting' - Entering the property market without sacrificing your current lifestyle
After a number of years of property price growth, purchasing in a centrally-located or sought-after area is very much out of reach for the average working millennial. Instead, many are opting to rent rather than buy as it means not having to compromise lifestyle. But for those who are still eager to enter the market, there is a way to get the best of both worlds.
‘Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location and continue to live and rent in the area of your choice. An example of how the market is evolving, it is a wealth creation strategy that is popular due to the flexibility it offers in comparison to being an owner-occupier. It’s a tactic that overcomes financial hurdles and exorbitant property prices, because you can buy in a location that fits your budget rather than stretching yourself with loan repayments that restrict quality of life in the area you most enjoy.
Millennials are less interested in purchasing property in the outer suburbs having to either commute into the city hub or live in a less desirable area. Rentvesting works because even though you’re renting, the property you buy is an asset that’s growing in value and being paid off by your tenant (assuming you choose a smart location and interest rates remain relatively low). Not only that, but you’re gaining equity that can launch you into other property purchases down the track, including a home to call your own.
For Rentvesting to be further beneficial, If you are an efficient saver and your tenant is paying down your loan, you can invest your savings alongside the investment property and use what accumulates over the years for your future benefit.
In the past, the great Australian dream was to buy a home on a quarter acre block and then do everything you can to pay that down as fast as possible in the hope of living debt-free. Rentvesting is quite the opposite. It says we’re okay with good debt as long as we stick to our budget and keep using the money to invest further. You’ve got to have an open mind and be comfortable with debt. But while this strategy may appear ideal to many, it’s not suited to everybody and does come with some pitfalls they will need to be weighed up. Capital Gains Tax, not having the security of owning your own home, and risk the housing market doesn’t perform are a few.
To ensure you have the means to make ‘rentvesting’ work for you, for advice on good debt and other strategies that will allow you to maintain your current lifestyle get in touch with the team at The Wealth Connection.