RENTVESTING: The Best of Both Worlds

Want to live in an inner city suburb, but simply can’t afford to buy in it? Hello, rentvesting!

In this Money Magazine article, Ben explores the alternative strategy to tackle housing affordability:

Rent in the location you want to live; but still invest property.

Rentvesting is a shift from the baby boomer view of home ownership; but it is a way forward for individuals who still want to break into the market, but don’t want to sacrifice their lifestyle in the process. In capital cities, particularly in the Melbourne and Sydney markets, there is a significant price difference between the cost to buy and the cost to rent. For this reason, without lowering an investors’ living expectations, rentvesting is the compromise to achieve both.

Of course, there are some “pros” and “cons” involved—and it is often suited to those with higher incomes who want to increase their borrowing power. An overview of these favourable and unfavourable factors, which Ben explains in more detail in the article, are:

The Pros

• Lifestyle
• Wealth Building
• Cost Savings
• All care, no responsibility
• Ease the burden
• Tax Benefits
• Go with the Flow

The Cons

• Loss of Full CGT (Capital Gains Tax) Exemptions
• Emotional Cost
• Loss of Control
• Peer Pressure
• “Rent Money is Dead Money”
• Regulatory Risk

To demonstrate these arguments, Ben includes a Case Study—“Meet Steve”. Steve is a 27 year old, single male still living at home with his parent, exploring his investment options—buy to live in or rentvest in inner city Melbourne—before he moves out.

Interestingly, after Ben sifts through the selection choices, factoring in costs and surplus cash, Steve turns out to be better off rentvesting than buying to live in. In fact, it would appear he would be up $129,700 if he continues to rent!

Click on the image to read the full article.