Renting, Rentvesting vs Buying – 5 Essential Factors to Consider

rentvesting vs buying- rent where you want to live, while investing elsewhere

RentVesting vs Buying is a popular financial growth strategy, especially among younger property buyers. House prices in Australia are rising, pushing first-time buyers out of the market. However, there is an age-old scheme that may be the solution to their financial problems.

House prices have risen at a soaring rate in recent years, with average property price increases in major cities like Sydney exceeding 400% since the 1990s.
Many would-be homeowners today believe their dream home is out of reach, and an increasing number of Australians are considering other ways to help them climb the property ladder.

Rentvesting vs Buying Strategy

Renting property, or buying an investment property within your budget and renting your ideal home, is a technique that has been around for a long time, but in the post-COV environment, it has become more popular.

For Australian Millennials, the traditional approach to house ownership was instilled in us from an early age— owning a home was simply ‘what you did’ in our parents’ generation.
While having your own property and being able to paint a feature wall in your favourite shade of tangerine is tempting, many people are questioning if the half-century-old approach of purchasing a home and coping with a huge debt is actually a sensible move.
There are a few things you should know before answering that question.

Rent Isn’t a Waste of Money

One popular money myth is that when you pay rent, you’re simply paying someone else’s mortgage or wasting money. This is only partially correct; especially when you take potential rentvesting tax benefits into account.

Yes, your rent payments will certainly be utilised to cover your landlord’s mortgage payments. However, because the average rent is far less than the average mortgage and other expenditures on the same property, the alternative to owning is not simply renting the same home, but rather renting and having more savings.
Also, you nearly always ‘tie up’ financial savings for your property deposit when you buy a house. This implies that if you decide not to buy your current house, you will have more money to invest in it.

The implication of the above is that while deciding whether to rent or purchase, you’re actually deciding between: option 1 – renting and having greater regular savings and more cash savings to invest in increasing your wealth, vs. option 2 – buying a property with your savings and a larger portion of your monthly income.

Rentvesting vs Buying has Definite Financial Advantages

Renting the house you want to live in, for example, may allow you to put your money towards a different investment property, maybe one with a greater value that will increase quicker since it is more costly. You still have a roof over your head in this situation, but your investments are rising at a faster rate.

There are a lot of moving elements here, so you’ll need to do some math. (use a rentvesting calculator.) However, because real estate is such a huge investment, having the right plan in place will almost certainly have a significant impact on how rapidly you accumulate wealth over time.

The Distinction Between Renting, RentVesting vs Buying

Mortgage interest and property fees such as strata are not tax-deductible in Australia under existing tax regulations, although they are on investment properties. This implies that the after-tax cost of buying the identical property as a primary residence, as opposed to an investment property, will be different.
Your taxable income, marginal tax rate, current interest rates, your mortgage, and other continuing property expenditures all influence whether the after-tax cost of your property acquisition is positive or negative. However, you should be aware that there is always a distinction to be made.

Rethinking the Value of Your Home as an Investment

It’s commonly believed that owning a high-value property is advantageous, as it signifies a substantial asset. However, when it comes to long-term financial gains, your house may not be as beneficial as you think, especially if you plan to live in it indefinitely.

While legally classified as a financial asset, your home doesn’t provide significant financial advantages if you don’t plan to leverage it for investment purposes. In reality, the higher the value of your home, the more of your money becomes tied up in an asset that doesn’t actively contribute to your overall wealth.

Achieving a proper balance between your total wealth and the capital locked in your home is crucial in building genuine wealth. It’s important to avoid falling into a situation similar to the United Kingdom’s nobility, who own extravagant castles they struggle to maintain while lacking sufficient funds for a comfortable lifestyle.

While this example may seem extreme, it serves as a reminder when considering the soaring housing prices in Australia’s CBD regions.

Rent Vesting— Stepping Stones to Your Dream Home

Keep in mind that if you decide to rent today, it does not have to be a permanent decision. If the math adds up and you’re okay with renting for a while, you can use your extra cash to build assets and make it easier to buy your dream home later. If your ultimate objective of purchasing a $1.5 million house is now out of reach, buying an investment property for $750k will put you halfway towards your dream home’s overall worth. Then, in a few years, you should be close to being able to sell both homes and purchasing the home you genuinely want by purchasing another $750k investment property.

Although there are other things to consider, such as taxes and the costs of purchasing and selling a home, I’ve seen this method work successfully for a lot of people in the past.
The alternate tactic of staying out of the real estate market while prices increase has historically been shown to be ineffective.

Rentvesting Calculator & Figuring Out What Is Best For You

There are many things to consider when determining if renting is better than purchasing a home. I don’t believe in the widespread assumption that there is a single solution that works for everyone. The correct response is entirely up to you. Rent vesting may just be a great option.

It depends on your current financial condition, the type of property you’re considering purchasing, and how your situation will evolve over time. A home purchase is a long-term investment, so don’t make the mistake of thinking short-term.

Purchasing a home is an emotional decision, and your emotions are crucial. However, they are not the most significant factor. Too many times, I’ve seen individuals make property decisions based only on how it “feels” to them, rather than digging deep enough into the data, only to come to regret it later.

The key to making the greatest property purchasing decisions for you is to think about your emotions as well as the figures. You should sketch out your present financial situation, including your assets and debt, as well as your income and spending, and then consider how these will develop over time.

Consider any major life changes, such as raising a family, starting a company, daycare and education expenditures, prolonged travel, and so on. This is what I refer to as your “lifestyle baseline.” Once you’ve laid the groundwork, you can start thinking about your home purchase, weighing the pros and cons of renting versus buying, and buying as an owner-occupier.
Examine your figures and consider the impact on your day-to-day operations over the next several years, as well as your asset position in 10 to 20 years. There will be a monetary difference between the two situations, but there will also be an emotional difference, as previously stated.

You must consider what is most essential to you and find a balance that works for you.
If you strike the appropriate mix, you’ll end up with a home that provides you with both the financial and personal rewards you desire. Rent-vesting also helps you to detect and manage risk, as well as ensures that your home acquisition is compatible with the lifestyle you choose now and in the future.
This can be tough to accomplish on your own, so don’t be hesitant to get professional assistance – it will more than pay for itself.

RentVesting vs Buying Strategies In Conclusion

Purchasing real estate is a big choice that will affect your finances for years, if not decades. The emotions and peace of mind that come with renting vs. purchasing a home are also important considerations. The trick is to maintain a sense of balance.

There are a lot of myths, misunderstandings, and stigmas around purchasing property out there – don’t fall for them. Take the time to plan out the best approach for you, and you’ll reap the rewards today and in the future.

Are you planning to get into the real estate market and live elsewhere? If you’d like to know more about rentvesting vs buying, check out this blog post: “Tips for a Successful Rentvesting Strategy.” This comprehensive guide outlines a strategic approach to easily obtain the benefits of rentvesting. Additionally, you may find our post titled “Smart Investors Look to Turnkey Investment Properties” informative and helpful in your investment journey. Take the first step towards financial success by exploring these valuable resources today.


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1 thought on “Renting, Rentvesting vs Buying – 5 Essential Factors to Consider

  1. Rentvesting Australia

    Hey, thanks for enlightening us with your content. Your blogs are captivating, and I’m eager to explore more from your website. Your knowledge and insights are greatly appreciated. Keep up the excellent job! Thanks for sharing about rentvesting vs buying .

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