‘Rentvesting’ is the term given to first-home buyers who are buying an investment property while continuing to rent the home in which they live.
Why would one do this, you may ask? Well, as a first-home buyer, you may want to get a foot in the property market, but be unable to afford to buy in the area in which you are renting, or you may be able to afford a much smaller property which does not meet your own current needs. Purchasing a property in a more affordable area, or a smaller property than you currently need in the area of your choice means that you can own a property and rent it out, covering your costs through a combination of the rental income and the tax incentives that favour investment. Expenses such as repairs and depreciation can be tax deductions, thus closing the gap between your costs and your rental income.
‘Rentvesting’ is seen by a growing number of people as the answer to growing wealth and living where you want to live. If you are renting then you are able to choose where you want to live, and for how long, without the major expense and stress associated with selling your home and buying again. Selling your own home and purchasing another to live in will cost you about eight percent of your asset’s value, whereas if you were renting, the cost of a move would be mainly in the removal and delivery of your furniture.
Renting provides a level of flexibility in terms of size of home and location that you would not have if you owned the home in which you live. However, there are a number of drawbacks to renting the home in which you live.
Renting is temporary – the home does not belong to you, and should the needs to the actual owner of the home change, you may be looking for alternate accommodation once your current rental agreement expires.
In some areas, and for some types of houses, houses may be occupied by owners and there may be little available to rent.
If you combine the approach of renting a home and also investing the housing market, ‘rentvesting’, there is the potential to experience the best of both worlds – the flexibility of renting and the wealth creation opportunities of investing to rent out.