Rentvesting; relatively new term, reasonably longstanding concept.
Rentvesting is where you rent the property you currently want to live in, yet you get on the property ladder by purchasing an alternate property as an investment. One of the downsides to rentvesting is that when you eventually sell your investment property, you have to pay capital gains tax. If, however you’re savvy, and have the ability to plan ahead, there’s ways it can work for you and you can avoid most, if not all the capital gains tax you’d normally pay.
Buy a home for your future: You’re currently working and socialising in the inner-city areas, but you know eventually you’d prefer to live in the suburbs, preferably in a place where it’s leafy, green and family friendly. This scenario is a perfect time to rentvest. Buy your future home, rent it out, then continue to live as a tenant in the area that fits your current lifestyle and its needs. Then your investment is ready and waiting when you’re set to start your suburban chapter.
Rent the home that suits your current family dynamic: Whilst the nuclear family with Mum, Dad and 2.4 children still exists, it’s been joined more regularly than ever, by the blended/step family, the extended/multigenerational family and a range of other combinations. For some, buying a home that meets the size and location needs they have is unachievable. If it’s an area you’d like to settle in long term, buy a smaller home there and rent it out. When the number of family members you need to accommodate declines suitably, your forever home will be waiting for you.
Some see old house, you see development opportunity: Somewhere in the future you’d love to undertake a multi dwelling development, but you know that financially, you’re not quite there yet. Another great time to rentvest. Buy the property, tenant the home and continue building your financial stability. Once you’re at a point to make this happen, you’ll have the land waiting, and you’ll have had more than ample time to know what sort of development is both feasible and affordable.
The above scenarios are targeted as long-term strategies, however for some, the period of investment may be a lot shorter. As with any investment strategy, it’s recommended that you speak to a professional before committing financially.
Rentvesting won’t be for everyone, however it’s a great consideration and compromise for many.