Rent Vesting

If you’ve been searching for smart ways to enter the property market, you might have come across the term rent vesting. This growing trend is changing how Australians think about homeownership. But what exactly is rent vesting, and why are more people considering it as a strategy?

Rent vesting explained

Simply put, rent vesting is when you rent the home you live in, while simultaneously owning an investment property. This strategy allows you to live where you want, often in areas you couldn’t afford to buy in, while still gaining the benefits of property ownership elsewhere.

For example, if you love the lifestyle of living in a trendy inner-city suburb but can’t afford to buy there, rent vesting lets you rent a home in that area while purchasing a more affordable property in another location that may offer better long-term investment potential.

Why choose rent vesting?

Rent vesting can be an attractive option for many reasons:

1. Live where you want: You aren’t tied to buying in a specific area. You can rent in locations with great amenities, close to work or where you simply enjoy living, even if buying there is out of your budget.
2. Get on the property ladder sooner: If buying a home where you want to live seems impossible due to high property prices, rent vesting allows you to start building equity elsewhere. This can help you enter the property market earlier, rather than waiting until you can afford to buy in your dream location.
3. Investment opportunities: You can choose to invest in areas with higher rental yields or better growth potential. Your investment property could potentially generate rental income, help cover the mortgage and offer capital growth over time.
4. Flexibility: Renting gives you the flexibility to move easily, whether it’s for work, lifestyle, or personal reasons. At the same time, owning an investment property means you’re still growing your wealth.

How does rent vesting work?

The rent-vesting strategy typically works like this:

1. You rent where you want to live, perhaps in a more expensive area, without the pressure of coming up with a huge deposit or affording a large mortgage.
2. You buy an investment property in a more affordable area, using it to build wealth over time. Ideally, the rent from tenants will cover part or all of your mortgage payments on the investment property.
3. Over time, your investment property may increase in value, and you can use that equity to reinvest or eventually purchase your dream home if you decide to settle down.

Things to consider when rent vesting

While rent vesting has its perks, it’s not without its challenges. Here are a few things to keep in mind:

• Ongoing rent costs: You’ll still need to pay rent for the home you live in, which means managing both rent and the mortgage on your investment property.
• Investment risks: Like any property investment, there’s a chance that your investment property may not perform as expected. It’s important to research the market and choose an area with good growth potential.
• Tax implications: Rent vesting can have some tax advantages, as your investment property expenses, like interest payments, may be tax-deductible. However, you’ll need to speak to a tax professional to understand how it applies to your situation.

Is rent vesting right for you?

Rent vesting is ideal for those who want to live in a certain area but can’t afford to buy there just yet. It’s also a good option for those who are focused on wealth-building and see the potential in property investment.

Before jumping into rent vesting, it’s important to:

• Do thorough research on the property market.
• Understand the costs involved in owning an investment property.
• Seek advice from financial professionals to ensure it fits with your long-term goals.

If owning your dream home seems out of reach, rent vesting offers a creative solution that allows you to live where you love while still benefiting from property ownership. With careful planning, this strategy can help you get into the property game and grow your wealth over time.

Could rent vesting be the right move for you?