What is rentvesting?

There’s a whole lot of buzz words floating around the real estate industry at the moment. You’re probably familiar with the term ‘rentvesting’. If not, let me break it down.

• What does rentvesting mean?

Rentvesting simply means renting one property to live in while investing in another property, so you’re renting and investing at the same time. This is becoming increasingly popular with young professionals who are looking to get their foot into the market but can’t afford to buy property in an area they’d prefer to live in. Often, they’ll make a purchase of this first property in a suburb that’s affordable for them and offers growth potential, but will remain in the suburb of their choice in a rental home, allowing them to keep the lifestyle they prefer whilst also getting a foot up in the property market.

• Why rentvesting is growing in popularity

There’s been a rise in the popularity of the rentvesting concept in Australia over the past few years, as cities on the East Coast have gone through major real estate booms. As first-time buyers and those looking to grow their portfolio have looked for investment opportunities, they’ve had to weigh up the risk of losing certain elements of their lifestyle that’s most attractive to them. Rentvesting provides more flexibility in terms of lifestyle and location choices.

• What I wish I knew about property in my 20’s

When I bought my first property at the age of 22, I didn’t know this term – in fact, it probably didn’t exist yet! I bought this first property in Collingwood, an area I knew and liked. I wasn’t sure if I was going to live there and bought the property as an investment. Across the seven years I owned the property, it grew in value by 25%.

The second home I bought was in Melton South – purchased at just the right time. Within the first six months of owning the property, it had increased in value by 25%.

I tell you this story as a cautionary tale. If I had known about rentvesting when I was 22, I would have bought a home instead in Preston, Coburg or Brunswick, and watched as the value increased by over 300% in 7 years, instead of my relatively small growth of 25%.

If you’re considering rentvesting, it’s worth speaking to an accountant about the tax implications that are part and parcel of this growth strategy. This will also help you to work through your risk appetite. However, if you feel this is the right strategy for you, you may be able to achieve the best of both worlds!