Rentvesting explained: Is it still worth it in today’s market?

Want to own property, but can’t afford — or don’t want to buy — where you actually want to live?

Rentvesting could offer another way into the property market.

Instead of buying a home to live in, rentvestors purchase an investment property in an area that suits their budget and investment goals, while continuing to rent in the location where they want to live.

It can offer the best of both worlds for some buyers: the opportunity to get a foot on the property ladder while maintaining the lifestyle and location they enjoy.

But with higher borrowing costs, rising rents and different property markets performing in different ways, does rentvesting still stack up?

Let’s take a closer look.

What is rentvesting?

Rentvesting is a property strategy where you rent the home you live in while owning an investment property elsewhere.

For example, you might love living close to the city, beach or your workplace, but buying there could be outside your budget.

Rather than stretching your finances to purchase in that location — or giving up the lifestyle you enjoy to buy further away — you could purchase a more affordable property elsewhere and rent it out.

You continue renting where you want to live, while becoming a property owner and potentially building equity through your investment.

It’s a different approach to the traditional property journey, but for the right person it can provide another pathway into the market.

Why do people choose to rentvest?

One of the biggest attractions of rentvesting is flexibility.

You don’t necessarily have to choose between the lifestyle you want today and your longer-term property goals.

Rentvesting may allow you to:

• Enter the property market sooner
• Purchase in an area that better suits your budget
• Continue living close to work, family, friends or amenities
• Choose an investment property based on its investment potential rather than your personal lifestyle preferences
• Build equity that could potentially help with a future property purchase
• Maintain greater flexibility around where you live

It can be particularly appealing if the cost of purchasing in your preferred suburb is significantly higher than the cost of renting there.

Is rentvesting still worth considering in today’s market?

There’s no simple yes or no answer.

Rentvesting can still make sense, but today’s market makes it particularly important to run the numbers carefully.

Interest rates affect the cost of servicing an investment loan, while rental costs can affect how much you’re spending on the home you live in.

Property prices and rental returns can also vary considerably between suburbs, cities and states.

That means a successful rentvesting strategy shouldn’t be based simply on finding the cheapest property you can afford.

You’ll need to consider the bigger picture: your borrowing capacity, cash flow, investment goals, rental income, ongoing property costs and whether you can comfortably manage both your investment property and the rent on your own home.

The potential benefits of rentvesting

You could enter the property market sooner

If buying your ideal home is currently outside your budget, purchasing a more affordable investment property could provide an alternative way to enter the market.

Instead of waiting until you can afford to buy in your preferred location, you may be able to start building a property asset sooner.

You can separate lifestyle from investment

The property you’d love to live in isn’t necessarily the property that best suits your investment strategy.

Rentvesting allows you to make those decisions separately.

You can choose where you live based on lifestyle, while considering factors such as price, rental demand, potential yield and longer-term prospects when deciding where to invest.

Your tenant contributes towards the property’s costs

Rental income can help offset some of the costs associated with owning your investment property.

However, it’s important to remember that rental income may not cover your entire loan repayment and other property expenses.

You should consider whether your budget could comfortably manage any shortfall.

You may build equity over time

If your investment property increases in value and you reduce the amount owing on your loan, you may build equity.

Depending on your circumstances and lending criteria, that equity could potentially help you towards another property purchase in the future.

Of course, property values can rise or fall, so capital growth should never be assumed.

What are the downsides?

Rentvesting isn’t for everyone, and there are some important trade-offs to consider.

You’re paying rent and owning a property at the same time

While your tenant may contribute rental income towards your investment, you’ll still need somewhere to live.

That means your budget needs to accommodate your own rent as well as any shortfall between the income and expenses associated with your investment property.

Investment properties come with additional costs

Your home loan isn’t the only expense involved in owning an investment property.

Depending on the property, you may also need to budget for costs such as:

• Council rates
• Property management fees
• Landlord insurance
• Maintenance and repairs
• Strata or owners corporation fees
• Periods without a tenant
• Land tax, where applicable

Building a financial buffer can be important so an unexpected repair or period of vacancy doesn’t put unnecessary pressure on your finances.

You don’t have the same security as living in your own home

Rentvesting means you’re still a tenant in the property where you live.

Your rent may change, your lease may not always be renewed and there can be limits on what you can change about the property.

For some people, that flexibility is a benefit. For others, having a place they can truly make their own is more important.

There can be tax implications

Owning an investment property can have tax implications, including how rental income, eligible expenses and capital gains are treated.

The tax treatment of an investment property is also different from a property that qualifies as your main residence.

Tax rules can be complex and individual circumstances differ, so it’s important to seek independent tax advice before making investment decisions.

What should you consider before rentvesting?

Before deciding whether rentvesting is right for you, start with your bigger financial and lifestyle goals.

Ask yourself:

Why do I want to own property?

Are you primarily trying to build wealth, get into the market sooner or eventually purchase your own home?

How much can I comfortably afford?

Borrowing capacity is only one part of the equation. Consider what repayments and ongoing costs you can realistically manage while continuing to pay rent.

Do I have a financial buffer?

Investment properties can come with unexpected expenses. Having savings available for repairs, vacancies and other costs can provide valuable breathing room.

Where should I invest?

Buying an investment property should involve more than choosing an affordable suburb. Research local property values, rental demand, vacancy rates, infrastructure and the type of property tenants are looking for.

What happens if my circumstances change?

Consider whether your strategy would still work if interest rates, rent, income or personal circumstances changed.

Thinking through different scenarios before you buy can help you make a more informed decision.

Rentvesting vs buying your own home

Ultimately, there’s no single property strategy that’s right for everyone.

Buying a home to live in can provide stability, freedom to make the property your own and the emotional benefits that come with having a place that’s yours.

Rentvesting can offer greater flexibility and potentially provide an alternative entry point into property ownership.

The important question isn’t whether rentvesting is better than buying a home to live in.

It’s whether it suits your circumstances, lifestyle and longer-term goals.

So, is rentvesting still worth it?

Rentvesting hasn’t stopped being a potential pathway into property ownership — but it isn’t a shortcut either.

In today’s market, understanding the numbers is particularly important.

The right investment property, loan structure and strategy will depend on your income, expenses, borrowing capacity, existing commitments and what you’re ultimately trying to achieve.

Before you start searching property listings, it can be worthwhile understanding your borrowing position and what owning an investment property could look like for your budget.

Could rentvesting be your way into the property market?

If buying where you want to live feels out of reach, it doesn’t necessarily mean property ownership has to be.

An LJ Hooker Home Loans lending specialist can help you understand your borrowing capacity, explore suitable lending options and talk through how an investment property loan could fit with your broader property goals.

Ready to explore your options?

Speak with your local LJ Hooker Home Loans lending specialist and let’s look at what your next step into property could look like.

Home Loans Made Simple.

This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice. You should consider seeking independent financial, taxation and legal advice appropriate to your circumstances.