Rentvesting in a tight rental market
Like many first home buyers, you might feel your dream of owning a home is slipping away given that property prices only ever seem to go upwards these days. However, there's a strategy that might not only offer a lifeline but also a smart investment opportunity given today’s tight rental market. It’s called rentvesting.
What’s rentvesting?
Rentvesting might sound like a made-up word, but it can be a real game-changer for aspiring homeowners. Essentially, it involves renting a property to live in while simultaneously owning an investment property elsewhere. It’s like having your cake and eating it too – you get to enjoy the flexibility of renting while building equity in a property investment.
This strategy can be particularly appealing in today’s rental market, characterised by ultra-low rental vacancy rates. That’s because when there are fewer properties available for rent, each property on the market becomes more sought after.
This demand can lead to shorter vacancy periods between tenants and increased rental income.
Now, let's break down the pros and cons of rentvesting to see if it's the right move for you.
Pros of rentvesting
Getting a foot in the market: For many first home buyers, the thought of scraping together a deposit for a house in today’s market can feel overwhelming. Rentvesting offers a more achievable path to property ownership, allowing you to enter the market without breaking the bank.
Flexibility: Rentvesting gives you the freedom to move around as your lifestyle and career demands change. Meanwhile, your investment property continues to grow in value, providing financial stability and potential rental income.
Investment growth: If chosen wisely, your investment property can appreciate in value, offering you capital growth and potentially a way to leverage into another property in the future.
Tax benefits: As a landlord, you might be eligible for certain tax deductions related to your investment property, including maintenance, management fees, and interest on your investment loan.
Cons of rentvesting
Dual financial commitments: Rentvesting requires you to manage the financial responsibilities of both renting and property ownership. This means juggling rental payments, mortgage repayments, and property maintenance costs, which can put a strain on your budget.
Market risks: Property values can fluctuate, and there's always a risk that your investment property might not perform as well as expected. Unexpected expenses could also eat into your returns.
Limited control: As a renter, you're subject to the whims of landlords and property managers. You may not have the same level of control over your living situation as you would if you owned your home – which can make it harder to feel settled.
Is rentvesting right for you?
Ultimately, whether rentvesting is a smart move depends on your individual circumstances, financial goals, and risk tolerance. It can be a strategic way to break into the property market, particularly if you're struggling to save for a deposit or priced out of your desired area. However, it's essential to weigh up the pros and cons carefully and seek advice before taking the plunge.
Looking to buy a home or investment property in 2024? As an award-winning mortgage broker in Sydney with over 390 five-star Google reviews, Eventus Financial can help. Schedule a no-obligation consultation with Alex to get started.