Buying your first property is a huge deal, but deciding if you’re going to live in it or use it as an investment, by renting it out, is just as big.
Rentvesting is an investment strategy where you buy an investment property to build wealth, whilst renting accommodation to live in. Rentvestors are renters and property investors simultaneously.
It’s different from being an owner-occupier, where, like the name suggests, you live in the property that you own.
Buying your first property is a huge deal, but deciding if you’re going to live in it or use it as an investment by renting it out is just as big, so it’s a good idea to weigh up the pros and cons of each before making a decision.
Rentvesting is becoming increasingly popular among Millennial first-home buyers, who choose to invest where they can afford to buy and rent where they want to live (but can’t necessarily afford to buy).
For some, buying an investment property is a viable first step in the property market.
Lawrence Game, a RAMS Home Loan Specialist in Mt Lawley, Perth, explains the trend:
“In the Sydney and Melbourne markets especially, first-time buyers are savvy to the idea of buying a property as an investment first up, because it’s simply too expensive for them to buy in the area they want to live in.
“Rent-vesting is the new word, where people buy a property and rent it out straight away, but rent themselves somewhere else or even still live at home, which can be a big saving. This is a great way to get into the market,” he says.
Lawrence adds that first-home buyers need to balance what is best for them financially with their desired lifestyle. It can be a great way to get into the market whilst still living and working in an area that suits you, but there are a few things to consider before deciding to rentvest.
Especially with your first purchase, there are pros and cons to being a rent-vestor vs. an owner-occupier. Picture: Getty
As an investor, buyers can be eligible for some tax concessions. Picture: realestate.com.au/buy
The amount of money a buyer could borrow differs, depending on whether they intend to live in the property (owner-occupier) or use it as an investment (rentvesting). Investor loans typically come with a higher interest rate.
“Don’t forget Lender’s Mortgage Insurance (LMI) may need to be included in your borrowing capacity,” Lawrence says.
“There are so many things to consider, so we always strongly recommend people speak with an accountant or financial adviser.”
Rentvesting could help you live in an area that’s right for your lifestyle, whilst still being able to buy an investment property that fits your budget. It’s a different approach to home ownership. A rentvesting strategy could enable you to build a property portfolio and future wealth so that, one day, you may be able to buy your dream home.
But it’s worth noting that, as with any investment, there are risks to consider. Rental returns aren’t guaranteed, and you may have additional costs like property management fees. Before making your decision about rentvesting vs being an owner-occupier, it could be a good idea to seek professional advice that’s tailored to your situation.
Originally published on flatmates.com.au