In today’s difficult financial climate, owning a home can seem out of reach for many. This is where “rentvesting” comes into play – a strategy that allows you to live where you can afford and invest where it makes the most sense financially.
For previous generations, buying a home was relatively straightforward. Houses were priced at around four times the average salary, making it feasible to save for a deposit. Fast forward to today, and houses now cost approximately 12 times the average salary. Saving for such a significant deposit is daunting, especially when coupled with the pressures of repaying a hefty mortgage.
Add to this rising interest rates making even more difficult but there is light at the end of this dark tunnel as the 21st century also brings opportunities that were unavailable in the past. Access to information, financial tools, and especially expertise can help anyone to manage their finances better and enter the property market with options. Just like learning to sing, dance, or speak a new language, improving financial literacy is a skill that anyone can develop with a little effort and commitment.
Rentvesting simply is a home-owning strategy where you rent a property to live in that suits your lifestyle while owning an investment property that fits your budget. This strategy is gaining popularity, especially among younger buyers, as home prices in inner-city areas continue to soar.
At first glance, rentvesting might seem counterintuitive. Why would someone choose to pay both rent and a mortgage simultaneously? The answer lies in flexibility and financial planning. Rentvesting allows you to enjoy for example of staying close to family, friends and work or the fun of inner-city lifestyle, while your investment property grows in value elsewhere. You can purchase a more affordable property in a different area, which can provide rental income and potential capital growth. Whether you’re single and just starting out, or planning to move to a more spacious home later, rentvesting provides the flexibility to adapt to your evolving needs.
To make the most of rentvesting, start by assessing your financial situation to understand how much you can invest and what rental budget you can afford. Research investment locations with growth potential and importantly seek professional advice from financial advisors, mortgage brokers and real estate experts as property is a significant purchase and you want to get this right. Like any investment strategy, rentvesting requires commitment and long-term planning. Regularly review your financial plan and adjust as needed. This strategy can be then repeated say every 7 to 10 years, as your initial property would have now grown and nearly doubled in value if in a good location. Eventually with equity built up in your property/ies over time, this again provides you with options to then potentially to buy your home. As importantly I am not saying you shouldn’t have your own home as why pay rent if you don’t have to, it’s just may not be your first property if it is out of reach presently or if only alternative is to move 2 hours away or interstate to somewhere you can afford but away from family, friends and work.
So to finalise, rentvesting offers a viable pathway for those who want to enter the property market without compromising their lifestyle, and life work balance. By thinking differently and understanding we can’t sometimes play by the old rules, but understanding there are always options rather than giving up, it’s possible to achieve financial goals and secure a prosperous future. Best of luck with your financial journey.
Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich