Introduction to Rentvesting: What, Why and How

May 21, 2020
Invex Team

Investing in property is a dream for many people. Of course, all of us want to own our own home, which is an investment in itself. But what about going beyond this and purchasing a property purely as an investment — as something that is going to make you money?

This is easier said than done. After all, we need somewhere to live, and buying that property is a serious financial commitment. Many of us simply don't have the funds left over to sufficiently cover the cost of these investments.

However, this is where rentvesting can provide an answer. So, what exactly is rentvesting?

Rentvesting is the process of purchasing an investment property while you keep on living your lifestyle in a rental property.

Let's examine this a little more closely.

Why is rentvesting a good idea?

This set-up may set pose some questions. For example: Why pay rent to someone else when we own a property already? How will we manage paying a mortgage and rent at the same time, as well as other costs? Won't we end up worse off?

Well, if you engage in rentvesting in a careful and considered way, you can actually end up maximising your returns. Here's why.

Expand investment range

When buying a home to live in, you need to consider a number of lifestyle factors. For example, you may have to uproot your life and move to this new property, which may not be something you want to do at the moment.

With rentvesting, you are not constrained in this way. You can decide to invest anywhere you want, while continuing to live and work in your current area.

Cover investment costs

Depending on the property you purchase, you may be able to rent it out as a residential or as a commercial space. This means you can secure an income from the property immediately, which will help you cover the costs of holding the investment.

This is in addition to the gains you should receive when you decide to sell the property.

Tax advantages

You can claim ongoing costs such as holding and depreciation costs on an annual basis, while some of the fees involved in the initial purchase can also be claimed against tax. You will, however, need to pay capital gains tax on the property when you eventually sell it.

How to get started with rentvesting

Consider your suitability

We've looked at the pros of rentvesting, but it is worth understanding that rentvesting may not be the right choice for everyone. Consider the following;

  • Your capital gains tax liability
  • Living in someone else's rental property for the long term may be a sacrifice of lifestyle
  • The income from your investment property may not adequately cover your mortgage repayments

These factors can dissuade some for whom rentvesting may not be a good fit.

Approach properties diligently

Before investing, make sure that the property you buy is worth the purchase. Typical checks include:

  • Conduct condition surveys to ensure the property is in good condition and not a potential liability.
  • The financial potential of the property as an investment over time, including income generated and equity growth.
  • Think about prices trends in the area and avoiding stagnation or price decline.

Conclusion: Is rentvesting the right choice?

Rentvesting provides one avenue for starting property investing or expanding your portfolio, however there are several alternatives to rentvesting. 

Co-investing with an investment partner can increase buying power and opportunities and while reducing some of the personal liability of the investment. However, investing with a partner has its own considerations, and can offer less control to investors who prefer to be hands-on in the investment process.

If you are interested in taking advantage of property investment with a partner, read more about our co-investment offering at Invex. We’ll invest with you to cover your deposit so you can get on the property ladder faster, without a deposit. See how it works here.

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