As house prices continue to rise, many Australians are barely able to afford one property, let alone two. This has led to an increase in rent-vesting among real estate investors. Rather than owning a home, 4% of Australians have discovered the benefit of purchasing an investment property while continuing to rent in their preferred location. That percentage is small, for the moment. But that percentage is expected to grow. A study by CoreLogic found that 14% of non-homeowners would ‘definitely buy an investment property first’, with another 27% stating they would consider doing so.
It may seem backward, but for aspiring real estate investors, buying an investment property first may be one of the smartest ways of entering the property market and building wealth.
This can create a situation where a person owns several properties but is still renting their home.
The Logic Behind Rent-vesting
When people buy a home, they normally do not do so with the intention of making a profit. The biggest priority for a home is finding a location and property that meets our needs. Important factors are price, proximity to employment, infrastructure, amenities, layout, decor, and commute times. Each person needs to find a property that meets their specific needs to these criteria. And when they do, they may not care about the potential for growth if they like the home enough.
This means that buying a home is a gigantic money-sink, that may or may not increase in value. By comparison, an investment property (when the right criteria are met) can grow significantly in value.
A Long Term Strategy for Real Estate Investors
Buying a home is a short-term goal, whereas rent-vesting is a long-term strategy for real estate investors. By rent-vesting, a real estate investor delays their home ownership until they have built a financial foundation for their future. Yes, they may have to be a tenant for longer. But a rent-vestor can then use the growth in their investment as leverage to purchase their ideal home and other investments down the track.
Smart real estate investors realise early on that rent-vesting can be the easiest way to end up with a home and an investment property, while someone who buys a home first may never be able to afford an investment property.
While all reasonable care has been taken in the preparation of this article, we accept no liability for any direct or indirect loss or damage as a result of reliance upon this article. Always consult an expert before making investment decisions or property purchasing decisions.