Rentvesting is an increasingly popular strategy which provides people the opportunity to acquire higher and faster net worth through property ownership while also being able to live a very comfortable lifestyle in a property of your choice.
This have-your-cake-and-eat-it strategy essentially means that you RENT a property that best satisfies your emotional, personal, and lifestyle needs and you BUY a property/s based on their best potential for financial performance.
The rentvesting strategy respects that people have TWO completely different yet equally important objectives from real estate. One is the current need for personal comfort and the other relates to the longer-term value which everyone should place on future financial independence. Rather than lump each need in to one jumbled mess and totally compromise on both objectives, rentvesting is a structured process of separating each objective (compartmentalising) and focusing on trying to give yourself the best chance of nailing both objectives!
Is ‘rent money’ really ‘dead money’?
Bottom line, the answer is a very firm ‘no’!
The phrase “rent-money-is-dead-money” originated many generations ago as a jibe towards people who placed little to no value on acquiring a property asset. The jibe was targeted at those who lived in the moment, saved nothing, and seemed content to wonder through life without any structured planning about their future. Over the generations, the phrase has continually been repeated and progressively adopted as gospel without anyone pausing to challenge its merits.
What’s fascinating is that the masses that are still preaching this phrase today as if it is gospel haven’t themselves managed to become financially independent. According to government statistics, only 18 per cent of Australians aged 65+ years are financially independent even though they’ve spent sum 45 years or more in the workforce.
Home ownership certainly is a good thing. But, it’s inappropriate to imply that anyone renting is financially irresponsible. To the contrary, while each case is different, the financial benefits of rentvesting often far outweigh those of owner-occupation.
Rentvesting involves laterally thinking. Those who adopt the strategy are still being prudent by acquiring an asset base; they’re just not living in that asset. There are an increasing number of Australians who own multiple investment properties and have a bigger overall net asset value than what they could have achieved as an owner-occupier.
There is no ‘right way’ or ‘wrong way’. But it pays to properly explore the pros and cons of both before deciding what best satisfies immediate lifestyle needs and your longer-term financial objectives.
What are some of the common advantages of rentvesting?
Regardless of your age or the contents of your personal balance sheet, the biggest overall advantage is the ability to make your money work harder. Given that Australia is such a diverse country with 10 million dwellings spread across 550 city councils in 8 states and territories, it would be a minor miracle if the style of property and specific suburbs that you want to live in ended up producing the highest capital growth over the next 10-20 years of your life.
For first-time property buyers, rentvesting enables you to get into the property market sooner with a smaller deposit, as opposed to taking several years to accumulate a bigger deposit and the market climbing even higher.
Many rentvestors enjoy living in a nicer property and / or better location than what they could afford to buy. And, while doing so, all of the costs associated with the property that they are living in (council rates, repairs, building insurance) are the responsibility of the landlord. Conversely, their mortgage and all other costs associated with their investment property/s are tax deductible.
There is incredible flexibility from renting where you live. You can easily upgrade or downgrade to a different home if your circumstances and / or taste pallet change.
What are some common disadvantages of Rentvesting?
The biggest disadvantages are more emotional and physical than financial but that’s not to say these aren’t important. As more people learn to appreciate the financial advantages of rentvesting, some place more value on having the peace of mind of that you could never be asked to relocate because they landlord sold the property to a future owner-occupier. Others can’t put a price on being able to bang a nail in a wall or buy a pet without permission.
Is Rentvesting just for young, first-time buyers?
Rentvesting is arguably most popular among people in their mid-20s to 30s, especially those living in Sydney, because they’d rather not wait any longer than is essential to get a foot in the property ladder.
But the reality is that there’s a variety of reasons as to why some people just aren’t ready to put down permanent roots. There are certain professions that require people to move locations quite frequently. Over the years, Propertyology has enjoyed people working in the defence force, in mining and gas, some senior executives, and expats.
In some cases, migrants whom are reasonably new to Australia like to invest shortly after arriving while others like to love the flexibility of remaining mobile and being able to travel the world with the peace of mind that their hard-earned money is put to good use.
Watch this short TV interview wherein a couple of highly respected property experts, including our very own Simon Pressley, explain the benefits of rentvesting.
How much money do I need to invest?
The beauty of opening up your possibilities to incorporate (literally) every market in Australia is that there’s a plethora of exciting locations (capital cities and regions) that are affordable to buy, cost very little to hold, and the capital growth potential is very exciting. You’re unlikely to find these locations and fully understand the underlying market fundamentals as a DIY online researcher.
The typical property that Propertyology helps people to purchase costs between $250,000 and (never exceeding) $500,000. Whether using cash savings or leveraging against equity in existing property assets, it requires as little as $60,000 to get in to these markets. Depending upon specific deposit amounts, etc the annual holding costs of a typical property range from (say) $3,000 per year to being cash flow positive.
What would it cost me each year to start a rentvesting strategy?
Depending upon the specific purchase price and size of each investor’s deposit, a typical investment property purchased by Propertyology’s award-winning buyer’s agents would generally cost the owner around $2,000 per year.
How affordable is housing across Australia?
Housing in Sydney is, and always will be, extremely expensive. But all of Australia isn’t expensive. According to official statistics, 56 per cent of local government areas in Australia have a median house price of $400,000 or below and 69 per cent have medians of $600,000 or less. And, for the more affordable apartment option, a median price of $600,000 is accessible in 93 per cent of Australia.
Is now a good time to invest in property?
Contrary to rhetoric in the mainstream media, Australia is not ONE big property market with every location following a linear direction. At any given time, the property markets of each of Australia’s eight capital cities will be at different stages of their growth cycle. Similarly, the (literally) dozens of locations in non-capital city markets will also be doing different things. Historical evidence actually suggests that the best-performed property markets are in strategically-chosen regional locations.
The right time to invest is always as soon as you can afford to. Instead of asking ‘when’, the most important question for all property investors is ‘where’.
Propertyology is a Brisbane-based buyers agency and (national) property market research firm. We help everyday people to invest in strategically-chosen locations all over Australia. Testament to our multi-award-winning success is Propertyology’s expertise in being the only company in Australia to forecast Hobart’s remarkable resurgence and begin investing there in mid-2014, before the boom. Now, while others fight like seagulls over a chip to get in to that market, our buyer’s agents are actively investing in a few other locations that resemble what Hobart looked like in 2014. Like to know more? Contact us here.