What’s a rentvestor?
The term ‘rentvestor’ describes someone who continues to rent the property they live in but has bought an investment property in another area which they rent out.
Rentvestors typically live in areas that they can’t afford to buy in, and own in more affordable locations.
It’s a strategy which enables buyers challenged by housing affordability to have the best of both worlds - a foothold in the property market while continuing to live where they want.
How many Australians are rentvestors?
A recent survey estimates the proportion of Australian property investors who are rentvestors is more than 1 in 41.
Rentvestors are typically portrayed as generation y or millennial couples or singles who want to get on the property ladder, but are not willing to abandon their inner-city lifestyles and move to more affordable suburbs.
But research indicates this stereotype doesn’t capture the true nature of rentvestors.
A survey conducted by real estate company LJ Hooker found that2:
- 56% of rentvestors are aged between 35-55, and the biggest group of rentvestors are couples with children, at 39%.
- 61% of rentvestors buy existing houses, favouring these over apartments, town houses or new builds.
- 43% of rentvestors say their primary reason for rentvesting is having to live in a different location for study or work, while 26% say they rentvest because it’s too expensive to buy where they want to live.
What are the advantages of rentvesting?
The three main advantages of rentvesting are:
If you can’t afford to live in the suburb you want, rentvesting allows you to own property elsewhere whilst you keep living the lifestyle you want close to your friends, work, and the amenities and conveniences of a higher priced suburb.
If you consider yourself a bit of a global nomad, rentvesting enables you to have the security of a financial asset but not be tied down to your property, so you can still spend 6 months backpacking around South America or spending a year working in London if you’re not ready to settle down.
For families, rentvesting offers the added flexibility of being able to rent in suburbs that are in the catchment area for great schools, and being able to upsize and downsize your property as your family grows or as the kids leave home, without the stamp duty costs associated with buying and selling.
Financial and tax benefits
There can be financial benefits to owning a property as an investment rather than as a home. As an investor, you can claim tax deductions on a number of expenses such as interest repayments, property management expenses, and repairs and maintenance.
You’ll also be earning rent on your investment property, which could be enough to cover the cost of your mortgage or your own rent, or at least go some of the way to offset these costs. And – if you’ve invested wisely – you could benefit from owning a property that increases in value over time.
Are there any pitfalls?
Renting your home rather than owning it carries a few pitfalls, such as not having control over how long you can live in the property and not being able to modify or renovate the property to suit your needs.
Likewise, owing an investment property carries risks such as the property decreasing in value, not being able to find good tenants, and the risk of rising costs if interest rates increase.
Investment properties also come with their own costs, such as landlord insurance, property management fees, maintenance, and travel expenses to inspect the property. The rent you earn can help to offset some of these, but you’ll need to cover all the costs whenever the property is vacant.
Changes made by the government in this year’s federal budget mean that some investment property-related travel expenses are no longer tax deductible, so you may like to take this into account when selecting a location. For example, buying interstate might be less attractive due to the potential travel costs involved.
Where to rentvest?
Like any property investor, a rentvestor should buy with their head, and not their heart. Read our article for a list of things to consider when buying an investment property.
Some forward-thinking rentvestors use the strategy to buy a family home – locking their future home in at today’s prices and then renting it out until they’re ready to in move. For others, rentvesting is about buying a high-yielding property in a high-growth area in order to build a nest egg for when they’re ready to buy a home to live in.
Analysis by online financial comparison site Mozo has identified hot spots for rentvestors with less than $600,000 to spend to consider around Australia, taking into account factors like vacancy rates, property price movements, housing supply and rental yield.
The top seven suburbs are3:
- Madeley, in Western Australia
- Tewatin, in Queensland
- Scullin, in the Australian Capital Territory
- Liverpool, in New South Wales
- Brooklyn Park, in South Australia
- Trevallyn, in Tasmania
- Sunbury, in Victoria
How do I become a rentvestor?
If you’re a renter who wants to buy a property but wants to live in a different location for a variety of reasons, including affordability, then rentvesting could be for you.
Even if you don’t have your deposit together yet, a financial adviser can help you with strategies to better manage your cashflow, budget and reduce your debts to help you save for a deposit. For help to get you onto the property ladder, contact your financial adviser, or if you don’t have an adviser use our online tool to find one in your area.
1 Mortgage Choice, 1 in 4 property investors are ‘rentvestors’, paragraph 2.
2 LJ Hooker, Rentvesting: a new way to invest, pg. 3, 4, 5.
3 Mozo, The 7 hottest Australian suburbs every rentvestor should know about, paragraph 11.
If you can’t decide between a fixed or variable rate, a split rate home loan could provide the best of both worlds.