Are you familiar with 'rentvesting'? Here's how it works

Rentvesting is emerging as a viable strategy for those looking to enter the property market without compromising their lifestyle. This approach involves purchasing an investment property in an affordable area while continuing to rent a home in a preferred location. According to economists and property experts, rentvesting can be a practical way to build wealth and achieve homeownership goals.

Rentvesting allows individuals to buy a property in a location where they can afford to invest, and rent it out to generate income, while they continue to rent in a location that suits their lifestyle. This strategy is particularly appealing to young professionals who want to live in vibrant, urban areas but cannot afford to buy property there.

Daniel Butkovich, an advice editor, explains the benefits: "One, you get to live where you want to live. Two, your money is put to work in an investment. And three, you can take the emotion out of the equation of buying". This approach allows individuals to leverage the property market without sacrificing their desired living standards.

How Rentvesting Works

Purchase an Investment Property: The first step in rentvesting is to buy a property in an up-and-coming area. This property should be affordable and have the potential for rental income and capital growth.

Rent Out the Property: Once the property is purchased, it is rented out to tenants. The rental income helps cover the mortgage payments and other expenses associated with the property.

Continue Renting Your Home: While the investment property generates income, the rentvestor continues to rent a home in their preferred location. This allows them to enjoy the lifestyle they desire without the financial burden of owning a home in an expensive area.

Benefits of Rentvesting

Affordability: Rentvesting allows individuals to enter the property market without the need to save for a large deposit required for a home in a high-demand area.

Investment Potential: By purchasing in an affordable area with growth potential, rentvestors can benefit from property appreciation and rental income.

Lifestyle Flexibility: Rentvesting enables individuals to live in desirable locations without the financial strain of homeownership in those areas.

Challenges of Rentvesting

While rentvesting offers many benefits, it is not without its challenges. Potential rentvestors need to consider several factors before diving in:

Higher Borrowing Costs: Buy-to-let mortgages often come with higher interest rates and stricter lending criteria compared to owner-occupier loans.

Property Management: Being a landlord comes with responsibilities, including maintenance, tenant management, and dealing with unexpected costs.

Market Risks: Property values and rental income can fluctuate, impacting the overall return on investment.

Expert Advice on Rentvesting

Daniel Butkovich offers several tips for those considering rentvesting:

Do Your Sums: Ensure that the rental income will cover the mortgage repayments and other expenses. If not, be prepared to cover any shortfall with your own income.

Choose Your Location Wisely: Invest in areas with high income and population growth rates, good links to the central business district, and proximity to parks and schools.

Figure Out What Kind of Rentvestor You Want to Be: Decide whether you want to be a hands-on landlord or prefer a more hands-off approach.

Have a Safety Net: Build an emergency fund to cover unexpected costs and repairs.

Think Long-Term: Make property purchases with a long-term view to maximize returns and minimize risks.

Rentvesting is a strategic approach that allows individuals to enter the property market while maintaining their desired lifestyle. By purchasing an investment property in an affordable area and renting it out, rentvestors can build wealth and eventually achieve their homeownership goals. However, it is essential to carefully consider the financial implications and responsibilities that come with this strategy.