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Understanding rentvesting

Understanding rentvesting

The vast majority of people would like to start building wealth by jumping onto the property ladder. However, for many people, the cost of buying a property is simply prohibitive. While purchasing a main living place may not be possible in the present moment for these individuals, putting resources into property isn’t off the table, because of rentvesting. In this article, we will be looking at understanding rentvesting a bit better and how it could work for you.

What is rentvesting?

In a nutshell, rentvesting is when you purchase a property as an investment while living in a rental property yourself. For those living in profoundly exorbitant territories, it could be the most ideal route forward. Essentially, this means you can buy an investment in a more affordable area, away from where you reside.

Firstly, you need to understand that rentvesting is all about securing your financial future, without compromising on your lifestyle. Rentvesting also allows you to live in an area where you might not be able to purchase a property. All the while, you will have bought an investment property in a more affordable area. Furthermore, your tenants will be gradually paying off your mortgage. In addition, the investment property will be increasing in value whilst growing your equity. Subsequently, you can then use this equity to buy another property in your preferred area.

Benefits of rentvesting

  1. The primary advantage of rentvesting is being able to work and live in your preferred area while building equity in an investment property.
  2. As a property owner, you’re in a position to capture any capital gains that arise over time.
  3. In addition, as a renter, you have the option to easily move as your needs change.

The downsides to rentvesting

In as much as rentvesting is an excellent way to start building wealth, it does have its downsides. To start with you need to have sufficient cash flow. This is because you have to be able to cover your rental payments on your primary residence. In addition, your cash flow has to be sufficient enough to cover your mortgage payments on your investment property. Your rental property will be able to earn some rental income, however, this usually won’t be enough to cover your entire mortgage payments. Another disadvantage is that you won’t be able to personalise the rental property to your specific needs. In most instances, you are limited to the type and magnitude of works you can carry out on the property.

How to assess a rentvestment

Here are a few pointers on the items you should for when you’re on the lookout for your investment:

  • Firstly, look at investment properties with a high rental return.
  • Secondly, never put yourself in a situation where your finances are stretched. As such the affordability of the property becomes an important consideration.
  • You also have to evaluate capital gains in your potential investment area. This means carefully examine the potential of your investment area to gain value.
  • Another important consideration is the cost of repairs and maintenance required in your investment property. Ideally, you need to look at properties that require little to no maintenance.

Lastly, it is very important to bear in mind that a rentvestment can be an ingenious way to own property. However, it will require quite a bit of elbow grease and diligence. Furthermore, it needs patience as it is not a get-rich-quick kind of project.

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Teddy Chibanguza

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