What is rentvestment?

A strategy that gives you the ability to maintain the lifestyle you want, while allowing you to launch your investment trajectory, seems like a great way to start building a property portfolio.

But as with every good plan, there are pros and cons to consider.

Concept catching on

Rentvesting is a home-owning scheme that involves renting a property to live in that matches your lifestyle expectations, while you own an investment property that fits your pocket.

As home prices in inner-city areas and coveted semigration destinations have soared, this strategy is increasingly popular, especially among younger buyers.

Flexibility appeals

He says these buyers often look for small fixer uppers that can be put on platforms such as Airbnb and so earn a high rental return, while at the same time receiving an investment growth injection.

‘The fact that it allows buyers to maintain their current lifestyle while renting the property they are living in is particularly appealing. It also allows buyers to be a lot more flexible when it comes to lifestyle choices, such as travelling, or working overseas while still enjoying the fruits of a successful property portfolio.

‘Rentvestment buyers want flexibility, and this strategy gives them just that,’ says Pearson.

Do look down…

One of the downfalls, according to Pearson, is that it will take longer to get into the higher echelons of the market, and requires a strong rental market to sustain itself.

‘During the first and second waves of Covid, many rentvestment portfolios were hit very hard. It is also sustained through tourism so when the tourist trade slows down, it further impacts this market.’

Opportunities unlocked

Pearson concludes: ‘The rentvestment opportunity shows that young buyers are thinking outside of the box. They are switched on to the fact that, in many ways, the laws that governed their parents’ generation have changed.

‘It is an exciting time to be in property, and I believe this next generation of buyers will unlock all sorts of new opportunities.’

The upsides of the story

Suncorp’s Andy Wilgose summarises the benefits as follows:

• You get to live where you want, without being limited to where you can afford to buy.
• Maintenance costs at your rented home should be low, as tenants aren’t traditionally responsible for expenses caused by natural wear and tear.
• Potential tax benefits come into the picture if you are able to claim some investment property expenses as tax deductions.
• Rental income received from leasing out your investment property can be used as down-payment on your bond, or to pay your own rent.
• If your investment property increases in value, you could sell it at a profit later on.

And the drawbacks?

• Your primary residence will be less secure, for e.g. when the owner wants to vacate the property or change tenants. You may also have to make the property available for inspections, and deal with ever-increasing rent.
• Ongoing homeownership costs may mount, as landlords are normally responsible for the management of repairs to your property. You may also have to pay fees to a leasing agent. And if your rental income is less than your ownership costs, you’ll need to make up the difference on top of paying your own rent
• If your investment property decreases in value, you might have to sell it at a loss. So if you’re thinking of starting to build your property portfolio, first get professional advice from a qualified financial planner.