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What is rentvesting?

By Kevin Kelly

The 21st century loves a good portmanteau. It seems like there are new ones popping up everywhere, from 'chillax' to couple names like 'Brangelina'. The property industry is no different, with 'rentvesting' now a phrase you may have seen floating around.

This blend of renting and investing may pique your interest – but what exactly is it? 

The housing affordability crisis for first-home buyers

It's no secret that many people are hesitant to step foot on the property ladder. This is quite possibly the fear of debt and inability to afford a down payment for inflated housing prices that turns many of today's young people away from owning a property.

According to research by CoreLogic, properties rose in value by 9.1 per cent during January to October, 2016 – this was in all capital cities except Perth and Darwin. The highest is in one of our country's most popular cities, Sydney, with a 10.6 per cent surge.

Over on the McCrindle blog, it is explained that Generation Y (Millennials aged 22 – 36 years) have to face many more expenses, and at a higher rate too, than their parents did. There's not only the ongoing costs of technology, but also food, transport, healthcare and housing costs, such as rent.

There's only so much smashed avocado we can say no to before we start look at other options in the property market – this is where rentvesting comes in.

The new alternative to owner-occupied properties

Instead of focusing on purchasing a dream house, rentvesting takes the other approach of buying a second home first to secure the bottom rung on the property ladder.

How can this work? Well, rentvesting is a simpler take on investing. Rather than occupying their first property, a buyer looks at a more affordable market on the outskirts of popular suburban areas. A suitable property is bought to be rented out, whilst the buyer can live in the inner-city suburbs and use the rental income to pay off their own rent.

It's an effective way of building a property portfolio, without having the burden of a more expensive mortgage.

As you can see, rentvesting isn't purely for investment purposes – many choose the property to be intended as a retirement home down the track, and plan to move into it only after they leave the workforce and when the property is freeheld.

The pros and cons of rentvesting

There are many benefits to becoming a rentvestor. Firstly, you'll get to hop onto the property ladder that much sooner, which will make a difference when hoping to pursue investing in the future.

Your living arrangements can also be a lot more flexible. You're free to rent in whichever suburb you choose without being confined to where your property lies. Financially, you can be better off as well, because you won't have to meet the obligations of big mortgage repayments, and there is also the option to sell your property later for a capital gain.

It's not as simple as finding a cheap property to buy, however. There are many responsibilities that arise from being a property owner. Firstly, who will manage it? Hiring a property manager is a lot more convenient, especially if you don't live in the same area as your property, but it will be an added expense against your rental income.

If you choose to manage the property yourself, that's commitment and time you'll need to have on hand. Also, if it's intended for retirement purposes, you'll need to do your research beforehand to ensure that the neighbourhood, suburb and city are ideal for retirement living when the time comes.

It's locational predictions that an expert such as your local real estate agent may be able to make. To look at rentvesting a property, get in touch with the team at Ray White Bunbury today.

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