Rentvesting: How To Fast Track Your Property Journey
Rentvesting: it’s a buzzword that’s been coined in recent years off the back of crazy property prices which continue to skyrocket – way outpacing salaries. It’s the strategy many cash-strapped Aussies use to get a foothold in the property market without compromising on lifestyle. It works like this: you rent where you want to live and buy an investment property where you can afford.
^ You don’t have to buy the most beautiful house on the street either, with a little elbow grease you can add value to your investment property – not only bumping up your rental return but also your equity and property value.
It’s a great way to kickstart a property portfolio without sacrificing on lifestyle. Don’t think you have to buy a prized property though – an ugly duckling can easily be turned into a swan with quick cosmetic updates. Not that you have to do that straight away either if you need to save more cash, but when you eventually do… instant equity! Check out my Cosmetics Renovations For Profit course if you want to learn more about how to do that smartly. It’s everything I’ve learnt over the years renovating 150+ properties and I put it together so you don’t have to make the same stuff-ups I did!
Back back to rentvesting – what are the pros and cons? And would this work for you? Let’s dig a little deeper.
A MEANS TO AN END
Rentvesting doesn’t have to be a long-term strategy, it can just be a way to eventually buy your own dream home in an area you want. Or, you can leverage that first property to accumulate more to rent out – it’s really up to you.
^ Updating a tired kitchen or dated bathroom – like those seen in many Aussie homes in suburbs all over the country – doesn’t have to cost a fortune, and by learning where to spend and save it’ll pay dividends in the long-run.
One benefit to rentvesting is often times the deposit required will be much smaller. For example, if you’ve scraped together a deposit of $100,000 but live in a suburb where the median price of houses is $1 million, then clearly you’re priced out of that suburb – and probably the surrounding ones too. It’s going to take you a decade of saving to even get close.
Shift your buying focus to a capital-growth area where there’s a more affordable median price, say $400,000 for example, and you’ll be sitting pretty. Hone your research and find a gem that only needs a cosmetic spruce-up to add value and BINGO – you’re now on the property ladder.
Once you accrue decent equity in your investment property and it increases in value, then you have a solid foothold in the property market to springboard straight into your very next property investment. You’ve enjoyed the freedom of renting, while also making good money from your property investment – you’re in the race!
YOU’LL FREE UP YOUR CASHFLOW
Let’s say your dream “first home” requires mortgage repayments of $4,000 a month and that would be a stretch on your salary, and the banks won’t lend you that kind of money anyway. But if you rent a home in the same area, rental payments could be $2,200 a month, leaving you with $1,800 per month (if you had that to still to spare) to invest elsewhere or put towards a deposit.
You also can’t forget about the first home buyer government incentives you can take advantage of to give you a financial leg-up. Use the money to buy a modest property somewhere you can afford, and provided you’ve bought smartly in the right areas and the right property, you can cash it in down the track and buy your own home. You’ve made the Aussie dream come true by rentvesting.
^ Be open-minded when buying a property to rent out. You won’t be living there so it doesn’t have to feel like home to you. That said, updating the key areas of the home will mean you’ll be able to charge a higher rental amount.
A WAY TO BUILD A PORTFOLIO
You might be perfectly happy renting as a long-term option and decide to invest in property as a long-term retirement plan.
By taking the emotion out of your purchase decisions, you’re more likely to make a smart investment decision. Throw your net (and research) wide, and you’ll discover fantastic opportunities for investment properties in pockets everywhere. You’re now not limited by the comfort zone and emotional importance of buying a home. You’re embarking on the buy, renovate and hold strategy, with the aim of leveraging equity to progressively buy more properties. By the time you retire, you’ll have a nice portfolio of properties that kicked off with rentvesting.
The notion that “rent money is dead money” is a thing of the past. Think of it as a smart investment strategy that allows you to crack into a difficult property market at a price you can afford. You can buy sooner (renovate now or later) and kickstart your journey to financial freedom.
This article was first published in January 2020 and updated for comprehensiveness.