Rentvesting — What is it and should you be doing it?

Buying your own home was once considered a key pillar of the “Australian Dream”. But with housing affordability now reaching critical levels, it may feel out of reach for many who’ve yet to get a foot in the property ladder.

With the property price boom expected to continue, young Australians have turned to an alternative solution — rentvesting. The term has no doubt become a buzzword over the last few years, but rentvesting isn’t a guaranteed success or the answer for everyone. There’s no denying the demand for an alternative solution, with the average Brisbanite taking 7 years to save the deposit for their first home.

Explained simply, the overarching idea behind rentvesting is treating your first property purchase as an investment and residing at another residence while paying rent there. Instead of purchasing a property of the size and in the location they want to live, rentvesting allows people to live where they want to, without needed to fulfil the demands ($$$) of buying property there. For example, a young professional can rent out a two-bedroom apartment close to the CBD, and purchase a three-bedroom home in an outer-ring suburb. The property purchased is then rented out to tenants, to cover rental payments and later sold for capital gains. This strategy is all about not sacrificing the lifestyle you want, while still building a property portfolio. Additionally, when you buy as an investment, expenses like repairs and depreciation on the property can be claimed as tax deductions.

Rentvesting has many clear benefits, including being more flexible in terms of your own living arrangements and helping people enter the property market sooner. However, it doesn’t mean you’re free from the age-old proverb of “rent money is dead money”, and it’s not a one-size-fits-all solution. While it may provide a band-aid effect for a number of first-home buyers, experts warn this may create a more significant affordability issue for the next generation to deal with.

In 2014, only 20% of investors were also renting at the same time according to a Mortgage Choice survey. More recent data suggests that figure now sits at well over 30%. Rentvesting is cultivating a “landlord culture” which is likely to cause a skew in the market that favours higher property prices over time.

The decision whether to live in your first home or rentvest is entirely an individual one, and there are pros and cons to both. Whether or not the increased prevalence of rentvestors will worsen the housing affordability crisis over time is yet to be seen, but in the meantime, this concept offers many young people a step-ladder up to an otherwise elusive market.

Written: 2 October 2018

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