The Pros & Cons Of Rentvesting

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The pros and cons rentvesting.

Firstly, what is rentvesting? It’s simply renting where you want to live but using your money to invest elsewhere, instead of traditionally going down the path of buying your first home to live in and then investing in later life.

Now, even if you weren’t a first home buyer and perhaps you already own our home, you can actually still transition into rentvesting, which is where you might own your home initially, you then move out and then you start to rent and continue your investing journey.

Now in terms of the pros and cons, what are the pros of rentvesting? If you’re living in a particular city, let’s use Sydney or Melbourne for example, rents are actually traditionally cheaper than the property and the repayments and costs that would come out of your pocket to buy that equivalent place, because the yields in these two cities, which is basically the rental return you get on the property you buy, is so low that the costs of rents are ending up cheaper than the costs of actually buying that place to live in on what we would call the standard mortgage.

One of the pros suddenly becomes that saving that you have in money. Other pros become the choice of lifestyle. When you’re looking at lifestyle of a rentvestor, if you’re saying that something is now cheaper to live in the same place, you could actually move from an outer location to somewhere perhaps inner and have that improved lifestyle but pay the same costs as to buy a home in that outer location. These are one of the main things that many rentvestors really like.

Now, other pros are that if you’re looking to perhaps having a, maybe you had a change in your circumstances in your life. Say that you’ve had some family changes or perhaps even financial changes, imagine the impact that could have to your life straightaway. Now, when you’re thinking of rentvesting, the commitment usually is say, six months or 12 months on a lease and therefore the impact of that sudden change might not be as much as compared to a 30 year mortgage on a home.

That covers off the pros of rentvesting, what about the cons?

Well dead money is one common one that’s often used. Dead money is simply saying, you’re paying the rent to someone else and they use it to pay their mortgage. Well if the costs are so huge in terms of the difference, that dead money example might not be so valid but it is one that people think of. The other one is for first home buyers, if you did decide to go down the avenue of rentvesting, you may actually lose out on your incentives. Example, first home buyer grants. But then, the argument can be said, “What if you had some rapid price growth in the investing opportunity you’re looking at? And that would most definitely outweigh the actual grant or benefit or incentive you’re looking at because the property and the results of the property can very much grow in terms of cashflow and growth and imagine those two against the incentive.”

Lastly, ownership can also be one that’s considered a con. If you’re buying property, you actually own the place. It may not be suddenly that you own it straightaway but over time you do when the mortgage comes down whereas for renting you don’t have that full ownership. It is technically someone else’s place. 

Those are the pros and cons and rentvesting. As you can probably tell, I’m big advocate of rentvesting but there are pros and cons to be considered that you should know about.

That’s it from us here at InvestorKit, the experts in wealth creation, helping you take action.