The risks and rewards of rentvesting
Most people have heard of rentvesting: it’s where you rent where you want to live, but buy a property where you can afford.
It means you can keep renting in the area where you have built your life, but to get your foot on the property ladder, you buy a property in a different suburb, city or even state.
You might be renting in an area where the rent is manageable, but the cost of buying is well out of your reach. This is the kind of scenario that rentvesting is perfect for.
Here’s the reality: as property prices continue to climb upwards, many potential homebuyers have found themselves priced out of parts of major cities such as Sydney and Melbourne.
Property prices across the country are booming right now, so if you can’t afford to buy now in the area you’d prefer, it’s likely to be even less affordable a year or two from now.
That’s why many people are now exploring alternatives, to be able to get a foot in the door of the property market!
Is reinvesting a perfect solution? Not always. There are some downsides, which I’ll get to in a moment. But first, let’s discuss some of the benefits of rentvesting.
The best way to explain it is through a hypothetical example.
A young couple in their early 30s began rentvesting. They want to keep living in a capital city for their careers, but buying a home in their local area was well out of their price range – and they couldn’t see a time when it would become possible.
Instead of buying in Sydney, they chose to rent a place in their ideal suburb, while saving up for a property located in the Gold Coast – an area they chose for its relative affordability, rental demand and growth potential.
They bought an investment property for $400,000. A few years later, they used the growth in that investment to purchase a second investment property for $500,000. Five years later, they refinanced both investment property loans, and withdrew enough money to use as a deposit on a small home in Sydney.
Thanks to rentvesting, they were able to eventually buy their own home in Sydney, and they also now own three property assets. Now 40, they have plenty of options ahead of them:
This is a far better outcome than simply continuing to rent and saving for a property deposit for years and years…
That said, rentvesting does come with a few risks and downsides you need to be aware of:
There’s pros and cons to weigh up on both decisions, but the bottom line is: if you dream of owning a property, now is the time to look at all the options and make a plan to move you forward. If you’d like to find out your borrowing power and chat about your options, contact us today for an obligation-free chat on 1300 855 022.
Comparison Rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This Comparison Rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different Comparison Rate. Fees and Charges Apply. Terms and Conditions are available on request.