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Rentvesting How to Fast Track Your Property Journey

It’s a buzz word that’s only been coined in recent years and that’s because it’s a relatively new trend that allows cash-strapped Aussies to get a foothold in the property market – without compromising on the lifestyle choice of where they live. I’m talking about “rentvesting”.

In this scenario, you rent where you want to live and buy an investment property where you can afford.

Cherie-Barber_Renovating-For-Profit_Rentvesting

Rentvesting has become particularly relevant in those towns and cities where prices have skyrocketed out of reach for so many, leaving fewer options for those determined to crack the property market. It’s a clever solution to the housing affordability issue.

The beauty of rentvesting is that it allows you to get your foot on the property ladder by purchasing in an area where you can afford to buy (meanwhile letting someone else pay off all or the bulk of your mortgage), but still retain the flexibility to rent and live exactly where you want to. For freedom-loving millennials, it’s a particularly appealing concept. No compromise to lifestyle = big tick!

You also have the option to either renovate immediately or wait a couple of years to save some cash, then do a quick cosmetic reno that will manufacture instant equity and bump up your rental income.

So, let’s look at some of the main advantages of rentvesting and who it appeals to most.

A means to an end

Rentvesting may not be a long-term thing for you. It can simply be a means to an end, whether that’s eventually buying your own home or leveraging that first property to accumulate more.

Cherie-Barber_Renovating-For-Profit_Rentvesting

Think of it as a way to break into the property market NOW with a smaller deposit (for an investment property in a more affordable area), as opposed to waiting several years to save for something more lavish.

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. Hone your research and find a gem that only needs a cosmetic spruce-up to add value… bingo, you’re now on the property ladder, but you can still stay put and enjoy the suburb you truly love.

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’ve achieved your goal.

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. (See my blog on Why a Property Portfolio Beats Flipping)

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 an investment grade property 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.

 An alternative for first home buyers

The Aussie dream of owning your own home has been turned on its head over the last decade. For the current generation of would-be home buyers, the ratio of what they earn versus what they can afford to buy, has made property ownership a more challenging task for many. At the same time, the rental market has flattened in many areas, meaning renters can pick and choose. Put these two forces together, and it means you can rent a place you could never afford to buy. Whatever money you have left over, you can invest in a property that you can afford.

Cherie-Barber_Renovating-For-Profit_Rentvesting

For example, let’s assume that buying your dream “first home” requires mortgage repayments of $4,000 a month. You can’t afford that on the salary you’re on 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 to invest elsewhere or put towards a deposit.

We 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.

The bottom line

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.

Cherie-Barber_Renovating-For-Profit_Rentvesting
6 Responses to “Rentvesting How to Fast Track Your Property Journey
  1. What would be the minimum house price to develop leverage equity? Youve mentioned a $400000 home what about a house around $200000 investment property in a regional area? Would banks still value that as good equity?

    1. Hi Fi – you can start in property at any price and leverage equity. Just keep in mind that the lower your purchase price, the lower your equity. When renovating for profit, everything is percentages relative to your purchase price. I’ve got a lot of students who buy lower price properties in regional areas to get a foot up into the property ladder. C x

  2. Great post! This is what my daughter is aiming for right now. We were with the bank manager applying for an investment property home loan. We crunched the numbers and figured that if she could hang out at home a bit longer (6-12 months) whilst purchasing an investment property with an already existing tenant who wants to stay in the property, and then topping up the repayments with the same amount as the rental she would show a fantastic history of savings whilst quickly reducing the principal on the investment property so it will be a positive cash flow property asap. By helping her bring the property up to positive cash flow status from the day of settlement (gift deposit) she can get her next property sooner also with such a good record. Our bank manager thinks she has her head on straight too!

    I have been to a couple of your talks Cherie – one in Melbourne at the Sofitel and I took my daughter to hear you at the Grand Chancellor in Hobart. We live in Penguin on the North West Coast.

    1. Hi Bron – so happy for your daughter. You must be so proud and good on her for starting in property so early on in her young life! Makes me happy. C x

  3. Hi Cherie,
    I am in the process of doing your course and I’m loving it so far.
    Just a question on this subject. We live in a 6 bedroom home and it is now time for us to downsize. We live in a very family-friendly area and not many homes come on the market here and we would prefer to not sell. We would love to live near the beach but just can’t afford to right now.
    Is it best for us to rent our home out and rent a smaller place for us near the beach while saving more money and hopefully be able to buy our first investment property?
    Thank you, am loving your blog too 🙂
    Sandra

    1. Hi Sandra, so glad to hear you’re enjoying the course, thank you. If you prefer not to sell, keep your home as an investment property instead, especially if you think the suburb is going to continue to grow in capital growth. Downsizing & renting closer to the beach will make you happy and that’s something. But I really want you to do Step 1B of the course and speak to a finance broker to determine what your lending capacity will be, before you make any of these changes. If you haven’t got a good finance broker, call RFP HQ on (02) 9555 5010 and we’ll give a good contact who looks after lots of RFP students nationally. C x

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