Rentvesting: Could this be the right strategy for you?
Let's face it, buying property always seems expensive at the time. It only ever seems cheap 10 years after youve bought it. However, today it is probably as expensive as it has ever been, even taking into account historically low interest rates. And that is important because, for borrowers, what makes a property "expensive" is not necessarily the price but the monthly repayments.
In order to work out whether rentvesting could work for you, you need to decide what is important to you.
The first challenge is often location. Young couples in their 20s and 30s often have reasonable incomes and are at a stage in life when they do not have too many responsibilities, financial or otherwise. They tend to gravitate towards lifestyle locations, convenient for work as well as their busy social lives. In Sydney, for example, the Inner West is a magnet for this demographic, who can afford to rent in these areas. However, when it comes to buying, it is a different matter altogether. With the typical borrowing capacity of this demographic, if they choose to buy they could end up living a very long way from their preferred location in a property much less desirable than what they were previously renting. Previous generations were more open to buying what they could afford and trading up as and when they were comfortably able to. Nowadays I find people are generally less inclined to be patient.
Another consideration is your long-term goals. Taking on a large non-deductible debt right at the beginning of your property journey often means that you may be forced to delay the purchase of your first self-funding investment property for years. If you have a goal of being financially independent through property, rentvesting could allow you to achieve this goal within 10-15 years, whereas purchasing a principal place of residence, however humble, may delay this to the extent that your 15-year plan turns into a 25- or even a 30-year plan.
No one likes the word "compromise". Instant gratification is much more appealing. And this is where rentvesting could help. You get to live in a great property in your preferred location for a reasonable rent, while at the same time building your wealth by investing in property. This allows you to buy affordable properties in great areas with good potential for capital growth, which the tenant and the taxman pay for. Equally, your landlord's costs are being offset by tax benefits that they are entitled to claim, meaning that your rent is essentially being subsidised by the government. This elegant solution to living where you want to now, and ending up where you need to be financially in the future, could be the answer you are looking for. It certainly worked for me.
NEED HELP WITH YOUR PORTFOLIO? Ian is passionate about helping others realise their goals through investing in property, and can be contacted at Ph. 1300 850 038