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Ben Kingsley Blog post by Ben Kingsley

Rentvesting: Is it the right strategy for you?

So in this how to video, what I want to do is explore the idea of rentvesting and whether it is the right type of strategy for you. Now, every household is different in regards to their financial and personal goals. Rentvesting is the concept whereby you rent where you want to live but you invest the savings into a portfolio of properties, ultimately giving you a better financial outcomes. But not everyone is going to do that because in the fabric of our system and in our DNA, we are taught to acquire The Great Australian Dream and that is home ownership.

Those people who decide to rentvest, in other words, decide to live where they want to live and then go off to invest is outside of the norm. So the considerations you want to make when looking to rentvest come down to some of the fundamentals about what you are trying to achieve. If you want to get your children into say, a really great government school but the price in buying into that market place is in the millions. Well, it may be better to rent where it is quite low to do so and then invest that savings as opposed to be able to get into that market. You could also be a young couple with no kids and you are thinking of the same thing. Why would we go and buy a property where we have a very large mortgage and we are paying that with our after tax dollars. Again, we could live where we want to live, pay a lower rent, and then we could turn that surplus cash into an investment strategy. It is really important to understand all the moving parts about why we need to rentvest. So we know that it’s obviously live where you want to live, the benefits come in the sense that, when we are actually making those savings, we can invest that and we can maximise that returns. Because when we are investing, not only do we help support that investment but also the tenants and the tax man help us in acquiring that asset and maintaining it over the long term. So as the value of that asset grows, eventually it starts to sustain itself, in terms of the income is now becoming a passive surplus income for us.

Now, there is obviously some challenges around rentvesting and that is when we bed down and make a house a home, our landlord could say it’s time to move on. So there is no technical security around that.

But on the flipside of that, you can just go with the flow and you could take the opportunity to live in the certain location for a few years which meets your lifestyle needs then.

And then, you can change to another location and explore that. You may even change from say house to try and live in medium or high density accommodations. There’s a lot more flexibilities when we are renting because we also know that as owner occupiers, we have large stamp duties that we have to pay. So there isn’t that type of flexibility that you get as opposed to just moving in and renting. There is still those inconveniences though. We still have to pack those boxes and get them into that removal truck. So those are the types of things you need to consider.

So if I was to summarise what I am talking about here, it’s basically saying rentvesting is really technically a financial and wealth creation strategy. It’s outside the norm. There is going to be some of your peers who may judge you for not actually owning your own home. There is obviously the negatives around not having full exemption of capital growth as your principal place of residence, which means that you can’t bank that money if you ever choose to sell that property. But the fact is we have to live somewhere so we can either own it or we can rent it. But as long as we are looking at the financial goals and we are looking at our personal goals and I know how frustrating it is for some of our largest cities around being able to afford to live where we want to live.Well, renting is the best way to do that. So we take for examples like New York and all the mega-cities, London is a perfect example. Very few people own, they choose to rent there but of course they are going to invest some of their money into alternatives and in our case, we are talking about investing in a portfolio of properties over time.

So it really comes down to your personal circumstances, your financial and personal goals that you are trying to achieve. We know statistically when we do the number crunching, you will be financially better off under the current regulations and tax guidelines. Financially, you will be better if you rentvested but the big decision is really that mind shift. So “is rentvesting right for you“, is really a conversation about how comfortable you feel about that. Now it is a big decision so I encourage you to see professional advice from a qualified property investment adviser. It is all about the number and you do not want to be half engaged in this strategy. Because if you decide to do this and then change and you want to own a home eventually, it is going to be an expensive exercise and the bottom line is that you are going to be out of pocket with all the cost of moving in and out.

So once you decide it is right for you, you must stay true to that execution and that’s why it is really about sitting down and starting to know personal and financial goals.

Thanks for watching.

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