Rentvesting has been advertised as a choice for both first-time home buyers and prospective upgraders to aim and scale the housing ladder without compromising their lifestyle. But, as with any investment plan, it has its benefits and drawbacks.
While the idea of buying one or even more investment properties while contracting where you’d like to reside has been there for a number of years, as we become more advanced in our economic and asset strategies and judgment, Rentvesting has entered the subconscious of the average real estate buyer.
Rentvesting isn’t for everybody, but many individuals don’t even contemplate it, mostly to the loss of their wealth or lifestyles.
Preserving an open mind for Rentvesting gives you greater discretion and knowledge of your choices.
What are the benefits of Rentvesting?
Before getting into the benefits let’s explore what is Rentvesting all about. Rentvesting is when you reside in a rental while owning or paying mortgage on an investment property. This is basically the simplest explanation there is to this concept.
One of the many beauties of rentvesting is that there is no requirement for a long-term commitment. It could be a stepping stone to give you additional time.
Rentvesting will allow you to develop your investments by making a wise investment strategy instead of one based on feelings, which is often the problem when buying a new house to reside in. It helps you to stay in a better house or area, without needing to make a big monetary investment to the property too soon or maybe ever.
Through rentvesting, owners may also maintain existing assets or premises without having to sell to buy a long-term house.
The “test before you purchase” method means that you should rent and reside in your desired place or property model to make sure you are satisfied with your lifestyle preference before you purchase. It also allows you flexibility to improve your savings or maximize your surplus cash flow.
Why is rentvesting more affordable?
Rentvesting is now an increasingly popular alternative in Melbourne and Sydney, as living in a higher-end rental apartment are much cheaper than buying one.
It is because rental income is generally generated by property, whereas capital growth is usually generated by land. Higher-end property typically have a higher value of land, which is why the rental yield as a percent of the overall value of the property is also lower.
For instance, a house below the average price bracket will be more inclined to make an annual rental gain of four per cent of the property value at cost, whereas a higher-end property will only earn a rental return of about 3 percent or even less.
Besides that, for higher-end homes, there is also less demand from prospective renters because fewer individuals can pay to stay in these homes.
The correct call for you might not be the right one for anyone else. And that makes perfect sense – you’re unique, so your real estate approach should also be special. You have specific financial conditions, individual situation, ambitions, expectations, and it only makes complete sense for your property choices to be consulted.