Rentvesting - enter the property market without sacrificing your current lifestyle

Interest rate announcement – June 2018

Today the Reserve Bank of Australia met to review the official cash rate. After last cutting rates in August 2016, the RBA have again decided to leave the cash rate on hold at 1.50% this month.

As property prices continue to remain high, purchasing in a centrally-located or sought-after area is out of reach for the average working millennial. Instead, many are opting to rent rather than buy as it means not having to compromise their inner city or beachside lifestyle. But for those who are still eager to enter the market, there is a way to get the best of both worlds.

‘Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location and continue to live and rent in the area of your choice. An example of how the market is evolving, it is a wealth creation strategy that is popular among the younger generation due to the flexibility it offers in comparison to being an owner-occupier.

Millennials often don’t want to purchase property in the outer suburbs and then have a lengthy commute into the CBD. Rentvesting can allow your rental income to cover mortgage expenses, so you can keep living the lifestyle you want but still have equity in a long-term growth asset.

However, for this strategy to work, it is important that you are a good saver and are able to focus on delayed gratification. You need to be able to live within your means, avoiding the mentality of negative gearing and tax minimisation to focus on neutrally, or ideally, positively geared property that provides high rental yields.

A recent survey highlighted an increase in ‘rentvesting’ from 21 per cent of investors to 37 per cent over the past twelve months alone. But while this strategy may appear ideal to many, it’s not suited to everybody.

For many people, this may be a foreign way of thinking. In the past, most Australians dreamt of buying a home on a quarter acre block and doing everything they can to pay that down as fast as possible in the hope of living debt-free. ‘Rentvesting’ is quite the opposite. Rentvesters are ok with good debt so long as they stay to their budget and keep using their money to invest further.

If you would like to investigate whether ‘rentvesting’ might work for you, please contact us.

We can assist with your home loan

Shopping around, comparing and negotiating may save you thousands of dollars. We can assist with this research and decision making process free of charge. At Harvest we provide independent advice about home loans based on your personal financial situation, and therefore, do not favour any particular lender. We have access to over 33 loan providers to make sure you get the best value home loan that best meets your needs. Contact us to find out more.