What is rentvesting? Rent where you want, buy where you can afford

For many people, the suburb they can afford to buy in is not where they want to live. It may be too far from work, family, schools or the lifestyle they enjoy.

Rentvesting offers another option. You keep renting where you want to live and buy an investment property in an area that better suits your budget.

Why people consider rentvesting

Rent and property prices are influenced by different things. In some sought-after suburbs, the cost of buying has moved well ahead of the rent charged for a similar home. That can make renting there more manageable than buying there.

At the same time, you may be able to buy an investment property in a more affordable area. The rent from that property can help with the loan repayments, while you continue living in the location you prefer.

What it can look like

You might rent a home close to work for $700 a week, then buy an investment property in an area where the purchase price is within reach. The tenant's rent contributes towards that loan and you cover the remaining costs.

Over time, you may pay down the loan and build equity in the investment property. That equity could potentially help you buy a home to live in later, although the outcome will depend on the property, the market and your circumstances.

Costs and trade-offs to consider

Anyone presenting rentvesting as an easy shortcut is leaving out some important details.

Investment loans often have different rates and lending rules from owner-occupier loans. Buying an investment property may also affect access to first home buyer grants or stamp duty concessions. Rental income, possible deductions, land tax and capital gains tax can all need consideration, so tax advice should come from a suitably qualified professional.

You also need room in the budget for periods without a tenant, repairs and other ownership costs. At the same time, you remain a tenant in your own home and may still face rent increases or the need to move.

How to see whether it could work for you

Rather than comparing renting and buying as general ideas, compare the actual rent you pay with the specific property you may buy. Include the loan repayments and the less obvious costs of owning.

Try both calculator options. First, compare renting and buying a similar home. Then compare what the same monthly budget could look like if you rented where you live and bought elsewhere.

If the numbers are close, it may be worth having them checked before making a decision. Rentvesting can be useful for some people, but it can also be an expensive strategy if the budget is too tight or the property does not perform as expected.

This is general information only and does not take your personal circumstances into account. It is not tax, investment or credit advice, and any borrowing is subject to a lender's assessment.