Rentvesting 101: What is rentvesting? And Is it worth it?

One of the emerging trends in property investment is the practice of rentvesting. According to the 2019 Property Investment Sentiment Survey, over 16% of the participating property investors practice rentvesting. 

So what is rentvesting? And is it the right strategy for you?

As the name implies, rentvesting is a property investment strategy where someone chooses to live where they love and buy where they can afford. I.e. Buy one or more investment properties first before buying a first home to live in.


Why do people rent while investing?

As home prices continue to increase in prized inner-city areas, this strategy has become increasingly popular amongst younger buyers entering the market. With over one-third of first-time investors practicing rentvesting, this strategy will continue to grow as property prices continue to increase (2019 Property Investment Sentiment Survey).

At first glance, rentvesting doesn’t make logical sense. Why would anyone choose to pay additional rent when they already have a property and mortgage to pay off? 

The simple answer is because rentvesting can provide the best of both worlds. You can buy an investment property according to your budget, to start earning a rental income and get your foot on the property ladder to achieve future capital growth. On top of this, renting out an investment property may recoup most or if not all of the running costs. 

As you may not be able to afford a property where you want to live, a rentvester may be able to afford to rent in a suburb they love – close to work or other lifestyle benefits.


Advantages of rentvesting:

  1. Live where you want to
  2. Makes living in expensive suburbs possible
  3. If your workplaces changes, finding a place to rent is far easier than purchasing or finding jobs closer to your permanent residence
  4. Invest in higher capital growth corridors without affecting your place of residence
  5. Opens up your investment pool to opportunities in other more affordable cities such as Brisbane, Adelaide and Perth
  6. Potential tax benefits from negative gearing and depreciation

It all sounds great but how does it work realistically?

Let’s take a close look at the following example. 

  1. Both John & Jane purchase a property for $500,000 with a weekly rent of $400.
  2. Both have identical annual incomes of $80,000 and have $100,000 in savings as a deposit.
  3. Bothborrow $400,000 for the property and take an interest only loan of a conservative 4% (current interest rates begin at 1.99%).
  4. The only difference is that John (A) is purchasing as an owner occupier, while Jane (B) chooses the rentvesting path. 

At the end of the year, John without any rental income would have to pay $22,000 to live in the property himself. 

Rentvestor Jane only had to spend $2,536 out of pocket to hold the same property as an investment (not inclusive of her having to paying rent). However, the graphic doesn’t end here because Jane can benefit from tax benefits as an investor.

When negative gearing and depreciation is added to the calculation, Jane saves $4,074 per year in tax. On top of this, if Jane rents in the suburb of her choice for $400 per week, Jane will have to pay $19,262 per year inclusive of rent and her investment property mortgage. 

Comparing the two, Jane saves $53 per week compared to if she’d bought the property to live in. That’s $2756 in cash for the year! 

This article is intended to provide general information only, current at the time of first publication. It does not constitute any financial advice, offer, contract or inducement to buy. Investors are expressly recommended to do their own due diligence in relation to any investment decision they make and seek independent financial advice.

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