Rentvesting: a growing trend for real estate owners

Buying off the plan

Like millions of Australians, Emilia Rossi is a tenant.

But unlike most of those tenants, Ms Rossi also owns four investment properties across three states.

She is among a growing breed of real estate investors who chose not to own their own home. Known as “rentvesting”, the strategy sees people using investment property growth to build a deposit, or they rent a property that fits their desired lifestyle rather than what they can afford to buy.

“There is no benefit for me in living in what I own,” said Ms Rossi, 34, a digital consultant, lifestyle blogger and co-founder of online wedding marketplace Capriess.

She said building wealth through property investment was a major goal, and renting while investing freed up cash flow for investments and her businesses. “These properties are purely part of my investment strategy … this allows me to increase my cash flow and live a luxurious city lifestyle at minimal cost.”

Research by ME has found that one in 10 first home buyers are choosing to buy as an investor while renting a place to live.

“Renting is usually cheaper than owning in a given suburb, and as a tenant you’re free to select a neighbourhood that meets your lifestyle preferences,” said ME head of home loans Patrick Nolan.

He said rental properties that rose in value could improve investors’ equity to buy their own home later, but they needed to consider expenses such as insurance, rates and repairs.

“More importantly, your investment property will be subject to capital gains tax. Unlike an owner-occupied home, which is tax free, any profit you make on the sale of a rental place can be taxed.”

Metropole Property CEO Michael Yardney said the rentvesting trend was likely to continue because it helped people who moved around a lot for work, travelled for long periods, and wanted to live in suburbs that were priced out of their buying budget.

“Rentvesting suits the lifestyle of many millennials, allowing them flexibility in where they live, giving them the opportunity to travel and at the same time grow their wealth,” he said.

“It’s a lifeline for those who are trying to gain a foothold in a property market that’s essentially a moving target.”

Mr Yardney said the traditional belief that “rent money is dead money” was a sticking point for some people, but renting while investing could be used as part of an effective overall investment strategy.