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The different reasons to start rentvesting

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The different reasons to start rentvesting

By Bianca Dabu | 19 April 2018

Rentvesting, or renting a residence while investing, is a popular strategy among Australians across markets—but will it work for everyone?

According to Smart Property Investment’s Phil Tarrant, who rents his home while building his portfolio, he uses rentvesting as a strategy to help him focus on understanding markets and make better investment decisions.

He said: “I invest as an investor where I should be investing … Where I want to live, I actually rent there. I live in a nice place and I can't see myself moving at any point in time.”

“If they come up for sale, I might buy them, but it would cost me a lot of money and it wouldn't be a good investment,” the avid investor added.

Essentially, choosing rentvesting as a strategy will depend on your capabilities and limitations as an investor, as well as your long-term goals.

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Propertyology’s Simon Pressley shares some of the most common reasons for rentvesting:

Affordable accommodation in capital cities

Many want to live in major cities like Sydney but only a few can afford to buy houses there, considering that prices rarely go below a million dollars.

Fortunately, like Mr Tarrant, you can rent where you want to live while making your money work harder on investments.

According to Mr Pressley: “They can't afford to buy here, but they still want to live here or work here.”

“We've helped people who work in the Defence Force, for example … [who] know that every two or three years they're going to be transferred … They earn their money working in Australia's military and ... they can save they invest around the country. We help them do that,” the buyer’s agent added.

Preparation for retirement

Like Dean, some people find themselves nearing retirement and still without any growing investment in their name.

In order to jumpstart their wealth-creation journey, they sell the family home and clear out its mortgage to channel their savings to investment properties.

Mr Pressley explained: “If it's a couple living in Sydney, they might hand out … say, $800,000 cash in the bank. Then, they rent where they want to live … and then they use the $800,000 ... introduce some debt and buy three or four investment properties around the country."

Utility of money

Both reasons stated above boil down to the ultimate benefit of rentvesting—utility of money.

According to Mr Tarrant, rather than having money sitting on his bank account to save up for a principal place of residence, he prefers to put it on investments to amplify its benefits. Aside from the equity gain, he also enjoys tax benefits as an investor.

He said: “[If my] money sit[s] in bank account, [it’s] getting, at best, two per cent interest— for every $100,000, you get $2,000. You pay a tax on it at maximum tax rate."

“I reckon if I compared investing $100,000 in savings [and] getting $2,000 a year in return on it versus that same $100,000 as a deposit for a property somewhere … [I will be] getting a lot more than $2,000 return on it,” Mr Tarrant added.

Buying a principal place of residence

Knowing the benefits of rentvesting, should you disregard the possibility of buying your own home?

According to Mr Pressley, luckily, there’s no time limit in property investment.

“I think, for most people, they would sort of see themselves at some point in time buying a family home, but there's no deadline on when you need to do it,” he said.

As a property professional, he recommended putting it off as long as you can—invest for the long-term and get your money’s worth before ultimately settling down. 

 

Tune in to Simon Pressley’s Q&A episode to know more about rentvesting as an investment strategy.

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The different reasons to start rentvesting
start rentvesting
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