Rentvesting - is this the way forward?

fhog
#1

Hi All,

Interested to hear your thoughts on rentvesting versus occupying for First Home Owners - specifically in Victoria

I noticed this article which outlines a couple who bought a property in Rosebud and have since sold it for a considerable profit.

I can see the pro’s and cons below:

Rentvesting:

Pros:

  • Investment property with regular rental income
  • Rent where you want to live and buy where value exists
  • Enter the market

Cons:

  • Unable to apply for FHOG or concessions inc. Stamp Duty Rebate
  • Higher Mortgage rates

Occupy:

Pros:

  • Cheaper entry level mortgage rates
  • Potential for FHOG and other concessions
  • Enter the market
  • Paying off your own mortgage and not somebody elses

Cons:

  • Pigeonholed into new properties only - potentially losing some character in your home
  • Often buying further away from where you work or would like to live
  • No immediate rental return

Does anybody else have further information or advice on this scenario?

@Julie @LisaStark

0 Likes

#2

Hi Jacob, I have written about this in my book The Formula to Successful Property Investing Here is part of my say on the topic, if you would like me to email the chapter to you just send me your email address.

Rentvesting.
It’s the great Australian dream to own the house you live in. And as a first-home buyer, this may mean some compromises in lifestyle choices. It might be buying further out from the city, so travel time goes up. Or buying in a suburb that may not have as many cafes or restaurants as you would like, so your social life changes. Too many people reach their goal of home ownership only to be crippled by the large loan payments.

Keep in mind that everyone is different. What some consider an affordable loan would be too big a burden for others. You only have to read some of the comments in real estate blogs and online forums (yes, they exist) to see what I mean. Some home owners are worried their loan repayments are 22% of their net income. Others are repaying more than 50%, but they have done the numbers and they manage just fine. Interesting isn’t it? What one family considers easily achievable another could never cope with.

Before we look at this further, this is the advice I give all young people about buying their first property: “I think the great Australian dream needs a slight mindset change. You should live where you want to live!” As we get older, we make compromises about where we live for a whole bunch of reasons, but why would you compromise when you’re young? Live where you want to live! You’re only young once. Maybe later you may need to compromise, but for now, enjoy your youth and live where you want to live.

There is a cycle here, live where you want to live when you are young, live where you need to live in middle age and live where you want to live when you get older. Makes sense doesn’t it? You may have to compromise on where you live in your middle years for several reasons, schools, home size, work or elderly parents, lots of things. But when you get older the reason you had to compromise on where you live may no longer apply. Once again, it’s totally up to you. Invest wisely and you can make that choice and really live the life of your dreams and you don’t have to be retired to do so. It’s a strategy my wife Laurel and I apply in our life, we spent years living in places we didn’t really want to be, sometimes interstate. But now we get to choose, we live in inner-city Melbourne during the week and out in the forest of Mt Toolebewong on the weekend, and that is a direct result of smart property investing.

But let’s get back to those of you that are just starting out. The next step is to work out whether you can afford to buy a property there. If you can, then do it. Even if you must start at the bottom, as long as

the basics are there an entry-level property will always be in demand in a good location. Then you should pay it off as fast as you can! I’m going to say it again, even if you’re sick of hearing it, paying down debt is wealth creation. And that first property is your train ticket to the house or property portfolio of your dreams.

But what if you can’t afford to buy where you want to live, maybe for years? Let me suggest another option: rent instead and at the same time buy an investment property in a location you can afford. From this position, you can then leverage from that property to the home of your dreams later.

This is known as rentvesting and it’s a valid option to consider for anyone who is struggling to get into the property market. This is how young people are getting in the property market right now. Some even combine resources with family members or friends, if that is what it takes to get them started.

Don’t limit yourself to the Australian dream. Run the numbers and see if you can come up with a dream all your own.

2 Likes

#3

Thanks for expanding on this topic Michael - Some really solid tips here for first home buyers. I’ll pop your book on the top of my to-read list, sounds like there could be some real gems in there!

2 Likes

#4

I wish I had this advice when younger Michael. I love the train ticket analogy as well as the concept of rentvesting. Food for thought with my own kids!

1 Like