Ramon Cura from Cura Property is going to explain the concept of rentvesting and how it helps in wealth creation and allowing you to live the life you want.
What is rentvesting
Rentvesting is where you decide to rent a home in the area you want to live and then invest in an area you can afford to invest in. The driver behind this decision is these people want to live in an area that they can’t afford to buy in and at the same time they still want to invest in a property so they invest in areas where they can afford to. It works for those that value their lifestyle but still want to invest in property.
Why rentvesting is becoming popular
Given what’s happening in the property market, rentvesting is definitely something we’re seeing more of these days. The property market in both Sydney and Melbourne has moved so quickly over the last few years that people cannot afford to buy the home they want, but they would still like to live in that area. As a result, people are forced to consider the idea of renting where they want to live, and investing in a property in Sydney, Melbourne or any other Australian city. This idea has evolved into a popular choice, both in terms of investing and lifestyle.
How does rentvesting work in practice?
Okay, here is how it works. Let’s say Sally wants to live closer to the city in Sydney and her budget is around $500-$600 a week. It will be almost impossible for her to find a property within 5km of Sydney CBD with that kind of a budget. However, Sally can rent an apartment or share a house with people on that budget. So, she decided to rent with a friend in Surry Hills.
At the same time, Sally invested in a two bedroom apartment a little further away from the CBD. She had the deposit saved for a while, which made it an affordable option. She is happy that she has invested in one of the major cities in Australia and she’s also living where she wants to live, which is a great example of rentvesting. In fact, Sally has been so successful that she now has saved up enough to consider buying another investment property.
The criteria for buying an investment property is different to a property you’re planning to live in.
The great thing about renting a property is that you have a lot of choice both in terms of the type of place you want to rent and the location. While wealth creation is about trying to find the best investment option for you and has a different set of criteria for renting.
When you are looking at a property to live in as a home and you also want it to be a good investment you end up with a long list of must-haves, which can be quite difficult to achieve.
There are some real differences in what you’re looking for when you want to invest in a property as opposed to renting a place to live.
When you’re looking for a place to live, the criteria is really personal. It will be about which way the property faces, the number of bedrooms, what kind of kitchen and living space it has.
When you’re looking to invest in a property, it’s more about the numbers, such as, what kind of return you’re going to get, the type of tenant you want, how much rent you’re going to get and how that fits in with your budget.
So, the two are quite different and trying to marry them together can be difficult. If you’re looking for a property to live in and buy as an investment you’ll notice a lot of emotion comes from buying a home. If you’re looking at an investment property it can be more clinical and a focus on numbers rather than emotion.
How rentvesting can help when you need a bigger place when starting a family
Australians love buying a family home. However, given where we are at right now with the property market many people need to consider other options. And, rentvesting is one of those. While it’s wonderful to own and live in your own home there is a lot of flexibility in renting where you would like to live instead of trying to buy, it takes the pressure off having to save for a larger deposit or stretch yourself for the mortgage. And that’s where good advice is really important. It’s important to talk to someone who really understands how the numbers work, who can sit with you, work with your budget, work with a set of goals and put together a plan that’s really effective.
With renting you have flexibility, but there is also that uncertainty of having to vacate.
One of the risks when renting is that the landlord may decide to sell the property. There are a couple of ways you can get around this. First, houses seem to be a safer bet because most people who own houses tend to hold them. Next, look for a long-term lease. House-owners are more amenable to long-term leases because the closer you get to the city, there are more apartments and the turnover of renters increases.
For more information about rentvesting
Rentvesting is a great strategy if you’re doing it for the right reasons. We would always suggest getting some professional advice from a personal financial advisor or a buyer’s agent. For the simple reason that this relates more to the personal lifestyle choice behind your decision and not a generic one.