According to a recent survey almost three-quarters of people believe that investing in property and renting elsewhere is a good strategy for those struggling to get into the market. While this “Rent-vesting” strategy has been a popular topic lately it’s important to understand both the PROS and CONS of this less traditional way of building wealth through property.
Recent data from State Custodian Home Loans stated that 74 per cent of people polled were of the belief that Rent-vesting is a good option for those who are unable to buy locally if local prices had exceeded their budget.
Just to elaborate, “Rent-vesting” means renting a property in your most desired location so you can live the lifestyle you want while investing in a property in another location that you can afford, giving you the benefit of not compromising on your lifestyle while still collecting the benefits of capital growth.
Certainly if you have little to no feasible way of entering into property in your local market then renting locally and investing elsewhere has a lot of advantages. However there may be some disadvantages for those who can indeed afford to buy locally so lets take a look at the advantages and disadvantages of this popular strategy.
THE PROS – Cheaper than a traditional mortgage?
Interestingly almost a third of Generation Y participants of the State Custodian Home Loan Survey were of the belief that renting in their local market is a less expensive option than attempting to buy a property and service the payments while living in it. This essentially allows them the flexibility of moving house more easily for work or travel, and more importantly keeping more money in their pockets to fund their lifestyles.
According to State Custodians general manager Joanna Pretty when it came to property ownership and investment the topic of enjoying themselves today was the primary motivator for the Gen Y crowd.
Ms Pretty is quoted as saying …
In this ‘lifestyle-focused’ era, a great rental in a fashionable area can be seen as a more desirable option than buying a place far from the action. However, while these areas provide a great lifestyle, they tend to be more expensive to both rent or buy, which creates a real dilemma when it comes to saving for a home.
This sums up the desire for Rent-vesting from those on the fringe of affording their local property market.
THE CONS- The Landlord makes the decisions
Now we look at the other side of the coin. While the PROS of rent-vesting provided certain opportunities for the right people there are obvious disadvantages to renting as opposed to owning your own home.
The major one is being subject to potential rent increases in the future, along with the possibility that a landlord may choose to sell the property or move in themselves at some stage. Much of this can be mitigated of course with the right lease terms, and if you are a good tenant then a landlord should do all they an to keep you.
There is also the question of where to invest? More people than ever are time poor and simply do not have the time to research the markets and locations that will provide good investment opportunities. It’s extremely important to carefully consider your financial circumstances before taking any kind of plunge and talk to experts who can advise you on the option that is right for you.
At Stone Invest our goal is to present properties that have the best chance of strong capital growth in respected property markets all without putting any real cost on your every day lifestyle. We believe properties should do the work for YOU, not the other way around.