One of the main findings of the 2019 real estate investment sentiment survey was that 16% of those surveyed are renters. The survey also found that almost half of the respondents would consider this tactic as a way to access the real estate market.
So what is this fashionable strategy?
Rentvesting is an investment method when an investor buys property in a place he can afford to buy, while continuing to rent where he wants to live. This can allow an investor to continue living in a place where a house could be out of his budget, while holding a property in a place that suits his financial situation.
This is not entirely new, according to Sarah Megginson, editor of Your Investment Property Magazine.
"I think this idea of ??profitable investing has been around for a while, but in recent years we have really formalized it as a strategy, and I think people are more strategic about it, "she said.
It may be ideal to consider this strategy whenever you feel comfortable delaying homeownership to achieve your investment goals, explains the investor. ; author of Get's Get Real, Luke Harris.
“Rentvesting involves renting when you could possibly buy a home, so it's a form of deferred gratuity. Of course, this can be uncomfortable, and renting gives a little less certainty than buying as an owner-occupier. However, not all tenants see this as a bad thing, ”he says.
The advantages of reinvestment
This strategy can allow you to enter the real estate market by buying in an area that you can afford, thus giving you a head start in reaching your investment goals.
According to Mr. Harris, making money is like being forced to save.
"The number one benefit to me is that it's like forced savings, in the sense that having an investment property while you rent focuses your attention on creating wealth rather than buying expensive things for your own home, "he explains.
This can give you the opportunity to live in places where buying is not entirely ideal due to the exorbitant prices. You could benefit from the location without the long term commitment on a mortgage. You can also create equity with the investment property that you purchased.
For example, the extreme costs of properties in Sydney and Melbourne have led people to consider alternative routes to entering the real estate market. An ideal to achieve this is through rentvesting, according to realestate.com. To chief economist Nerida Conisbee.
This strategy can also have certain tax advantages.
"Of course, your own home is not tax deductible, and therefore the annuity can give you tax benefits that you would not otherwise have, which gives you the opportunity to build your portfolio faster, "says Harris.
Disadvantages
As with all investment strategies, there are risks associated with rent seeking – the most important being the ability to sell or move in from time to time in your investment property.
"The problem is that you may have to move!" For many people who can be fun and have the chance to try a new street or suburb, but as you get older, people are less likely to want to move each time a lease comes to expiration, "says Harris.
One possible solution is to try to negotiate a longer lease.
"Or talk with the property manager about the owner's intentions and if he plans to sell or do anything that might keep you from staying longer – if, of course, you're concerned," says -he adds.
If you are a budding investor who also wants to buy his very first house, rentvesting can also disqualify you for subsidies for the purchase of a first house.
Is it for you?
This strategy can work for almost anyone. However, according to Cam McLellan, director of OpenCorp, it is particularly suitable for young individuals, couples or families who wish to start their investment portfolio.
This feeling is taken up by Harris.
"If you are looking to settle in, have a group of kids, and not move for 10 to 20 years, rent seeking may not be the right strategy for you. If you are young and mobile and happy to rent while you build the wallet of your dreams, then this may be a better result, "he says.
Essentially, rent seeking can work for you if you prefer the financial benefits of investing in a property while renting a quality home rather than paying a mortgage in a place that may not interest you.
To get an excellent return on investment, you need to consider many factors such as the location of your real estate investment and where you choose to rent. It is also important to take into account mortgage repayments and median rental prices in similar properties in your investment area.
"The market, square footage and ownership (M.A.P) are three main factors to (consider) when considering your rental property. A profitable investor will take their time to research the market and browse its designated areas until the right property appears, with the perfect balance between affordability and growth potential, "said McLellan.
Profitability may seem like a trendy new investment tactic that investors should be afraid to miss out on, but if you are hesitant about this strategy (or any other strategy, really ), it is best to suspend it. Don't be swayed by its cool sounding name and get on board immediately. Consider seeking professional help to make sure you get your money's worth and avoid not-so-ideal situations.
