Rentvesting involves renting a property to live in a while renting out your investment property. This solution is popular for homeowners who wish to live in an area that’s more convenient for their commute and lifestyle, while investing in an area they believe may be worth more in the future. With this option, homeowners can have the best of both worlds and even potentially move into their investment property later when they tire of the fast-paced city life. In today’s article, we look at ‘What is rentvesting’ and some of the pros and cons that come with renting while owning an investment property.
What is rentvesting and what are the benefits?
Pro: Live Where You Want
When it comes to ‘what is rentvesting’, most homeowners choose it as an option so they can buy a property sooner or if the preferred place to live and invest in property is different. For example, they may live in an inner-city area and still make a stake in the property market. This could be for closer access to work and schools, or to enjoy the infrastructure benefits of a bustling inner-city suburb such as entertainment, restaurants, bars or to be near friends and family.
Con: Higher Interest
If you’re trying to secure a loan for an investment property you can expect to pay higher interest. This is because an investment loan is seen as a higher risk, regardless of whether you own another property or not. You also won’t be eligible for a First Home Owners grant as it’s only available for owner occupied properties.
Pro: Purchase a Property Sooner
With property, the sooner you buy one, the better. This is because property value is seen as an appreciating asset that can offer homeowners a return in the future. Though you can’t always tell which suburb will boom or if your property will retain its value at all, many homeowners would prefer to invest in property than leave their money in the bank, where it’ll accumulate little interest. For many people rentvesting is a way to buy before they otherwise would have been able to do.
Con: It Can Take Up a Lot of Your Resources
Not everyone is lucky enough to find dream tenants right away, which can end up causing a lot of time, energy, and resources for you. As a landlord, you’ll have to screen tenants (a constant process if renters stay short term), maintain your property and deal with tenant issues. For those time-poor, a property manager can be a good solution but will add additional costs of up to 10% of the property’s monthly rental value.
Pro: Ease Mortgage Burden
Though rentvesting doesn’t always alleviate mortgage burden if you’re paying less to rent than what you’re earning through property, it can be beneficial for some homeowners compared with living in the property you own. For example, suppose an individual or couple invested in a family home located in the outer suburbs, in that case, they could potentially charge more for rent than what they’d pay living in a one-bedroom apartment near the CBD.
Con: Rent Money is Dead Money
At the end of the day, you’re still essentially paying off someone else’s mortgage while you pay off your own, which can seem counterintuitive to some people. Considering most people want to own a home so their money can go towards paying off their own property, renting a property will seem like it is a major setback for some.
*This content is intended as general advice and does not take into account an individual’s circumstances. Please do not act upon any of the information mentioned here without speaking to your home loan broker or a financial advisor beforehand.
We hope our article on what is rentvesting has given you a clear idea of the pros and cons of owning a home while you rent. If you’d like to discuss rentvesting with an independent property broker, contact Oak Tree Finances today for a confidential discussion about investment property home loans. You can call us on 0404 403 066, email loans@oaktreefinances.com.au or fill out an online form and we’ll be back to you shortly.