investing-city-first-home

So you want to buy your first property, but you don’t want to move out to the suburbs. You’re not sure if you’d enjoy life out on the fringes: the crushing commute, the social isolation and the lack of vibrancy don’t appeal to you. Well, have you thought about buying your first property, but renting your home?

No I’m not talking about Airbnb, I mean becoming a rent-vestor. It’s becoming common for people to buy in an affordable location as an investment, rent that property out and then continue to rent their own accommodation in a more desirable location.

It can make financial sense to take this approach, as in many of the major cities rent prices are falling. Rent prices in Sydney plummeted up to 8% in 2018, according to Domain. Rent prices in London fell 1.4%, the Evening Standard claimed. Manhattan rents fell 3.8%, Bloomberg reported. It’s not such a bad time to be a tenant in the city right now.

It’s the best of both worlds in a lot of ways. You could stay and continue to enjoy the best your city has to offer; the glittering beaches and cafe culture of Sydney, or the theatre and social life of London, or the pace of New York. All while someone else’s rent is paying off the mortgage on your investment property in a less desirable location.

Owning elsewhere but renting in the city can be a pretty amazing set up. But there are some pretty important things to consider before you make rent-vesting your wealth-building strategy.

1. Take time to consider the tax implications

Check your country’s rules on stamp duty for buying to rent. In some countries (for example the UK) relief from paying stamp duty is available if you are buying your first home, but it isn’t available if you’re buying an investment property. This may make buying a home that you intend to live in more attractive than rentvesting.

2. Identify best location to buy

Selecting the right property to purchase is pivotal to your success as a rent-vestor. It’s important to choose a property that has the potential for the price to appreciate over time. Do your research and identify locations that are considered growth opportunities. Also think about how appealing the location is. Does it have good access to transportation? Are there local schools?

Related to location is considering what type of tenant the property and location is likely to attract. For instance, a house in a holiday location is more likely to attract short-term leases, which may not provide the security and reliability that a rent-vestor requires to balance the mortgage on the property and their own rent. A studio or a one bed is more likely to attract young professionals living solo, a two bed more likely to attract couples and a three bed more likely to attract families. Think about the profile of your preferred tenant and whether the property you’re considering purchasing fits that profile.

3. Are you prepared to continue to rent?

Some people struggle with the idea of buying an investment property first while continuing to rent. It’s important to consider whether you can make this work for you. With continuing to rent comes all of the limitations of being a tenant; the lack of security of potentially being given notice of having to move out, the inability to make any changes to the property without permission, perhaps even having to put up with your landlord’s dodgy old furniture. It may also not work for people looking to start a family, who may outgrow the size of their rental property.

Rent-vesting can be a fantastic way to build wealth for the generation that missed out on obtainable housing prices in cities. But careful consideration needs to be given to all the pros and cons of rent-vesting, and professional advice should be sought by anyone looking to take the leap.

Would you consider rent-vesting as a means to build your wealth, while still renting your place of residence? I’d love to hear your thoughts on this strategy in the comments.

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