Date: 20th Apr 2022
As New Zealanders, many of us have a desire to own our own home.
That's the 'Kiwi dream', right?
But for most of us, that dream can seem unrealistic in the current market—our income is lower than we'd like, or maybe our Kiwisaver or savings just aren't quite there. Either way you look at it, buying a property can be difficult for many.
When you consider buying property, you can usually choose from three main options:
The third option, rentvesting, is a strategy where you buy an investment property — often in a more affordable area — while continuing to rent a home in your preferred suburb. The rental income from your investment helps cover the mortgage, allowing you to enter the property market sooner while maintaining your lifestyle and saving toward your dream home.
It doesn't matter what location you purchase your investment property. For example, you might want to buy a home in Auckland, Tauranga, Queenstown or Havelock North—places where house prices are continuing to increase at steady rates—but you can't afford to do that yet.
Instead, you purchase your investment home somewhere like New Plymouth, Hastings or the West Coast, where apartment and house prices are more affordable, and use that to generate a passive income stream. During this time, you can live where you want by renting in your ideal location until you can afford your dream home and make your next move.
The key thing to remember is that it is an investment, and its ability to generate cash flow and turn a profit must be considered.
Rentvesting is worth looking into if you fall under these categories:
Although you're buying a property that you won't be living in, the long-term and short-term benefits of rentvesting will set you up for the lifestyle you're aiming for. These include:
You can rent in your preferred location while owning property elsewhere.
Borrowing money for home loan repayments can become expensive in the long run. However, a property investment can help your money work harder for you and your future through capital gain and equity growth.
While you're renting your home, your landlord is responsible for all maintenance costs, upkeep and safety of the property. They also cover council fees and other utility services while you live there, saving you valuable coin.
Your tenants help you cover the mortgage with their weekly or monthly rent payments in your investment house, while you enjoy your current lifestyle.
Owning an investment property can offer tax advantages, including deductions for expenses like investment loan interest, maintenance, insurance, property management fees, and depreciation on eligible assets. Always consult with an accountant to find out how these benefits apply to your specific situation.
Rentvesting gives you the freedom not only to live where you want, but also how you want to live. If you wish to upgrade your rental, try a different type of home, or relocate entirely, you can do so without being tied down by your investment property. Enjoy the lifestyle you choose without the extra responsibilities that come with owning a home.
Of course, similar to purchasing a home, rentvesting also has its downsides that need to be considered when deciding whether to invest in rental properties. If the cons outweigh the pros, we recommend looking into other options.
Some of the drawbacks of rentvesting can include:
Choosing to delay the ‘Kiwi dream’ by renting a little longer and buying outside of the area can take an emotional strain when you feel ready to buy a home, but it's not quite the one you want.
As a renter, you can't make significant changes to your home, unlike if you owned it. However, it's important to remember this is a temporary living situation on the path to your ideal home.
As Kiwis, we're culturally attached to the idea of owning our own home, so there may be people who don't understand your rentvesting strategy, even if it makes more financial sense for your situation.
Managing a rental property comes with various challenges, including finding good tenants, handling maintenance issues, and ensuring compliance with rental regulations. You may need to hire a property manager, which can reduce your rental income.
You’ve probably heard the old saying, “Rent money is dead money.” But with rentvesting, that’s not necessarily true. The key is that you're not just renting — you're also investing. By purchasing an investment property, you’re putting your money to work and building wealth while renting where you want to live. Without the investment step, you’re simply renting, not rentvesting. It’s an important move toward getting onto — or moving up — the property ladder, and it’s a major financial decision.
If you're looking to purchase an investment property to take that step onto the property ladder, due diligence is essential.
Consider the following:
Find a house or apartment that is cash flow neutral (or positive) and has strong rental income potential. Ideally, it should at least cover your mortgage repayments and other ongoing costs.
Choose an affordable area for your property investment. Be sure to factor in the cost of any maintenance that may need to be done before tenants can move in.
Look for areas likely to increase in value to maximise your capital gain. Research market trends and consult local experts to identify areas with growth potential.
Consult with a mortgage broker about loan options specifically designed for investment properties, as these differ from standard home loans.
When looking for an investment property, it's essential to assess it primarily from a financial perspective, not just its aesthetics.
Here are a few areas that could be considered for rentvesting:
With a median house price of $635,000 and a high volume of properties sold compared to its counterparts in the Otago region, Dunedin could be a good option for a rentvesting property. Dunedin also has an average rent of around $350-$400 per week for a 2-3 bedroom home, according to REINZ and interest.co.nz.
The Northland region is a great alternative to the Auckland region. While the Ruapehu region has a lower median property price of $355,000, Whangarei has a higher population density, with a median house price of $555,000, making it a more attractive place to invest in property.
You’ll find a median rent of around $400 per week for a three-bedroom house and a great chance for increased property value and capital gains.
When it comes to city living in the regions, Wellington offers a great opportunity to buy in a highly populated area for a much lower price. Though the city itself has a whopping median of $1,063,000, the outer regions, such as Carterton or Masterton, with medians of $680,000 and 725,000, allow access to a wider population at a fraction of the property price.
The South Wairarapa region is becoming increasingly popular in recent years, with more opportunities opening up for commuters to Wellington, and a great location to jump on for your first property.
Rentvesting can be valuable if done carefully to suit your current lifestyle and future goals. We recommend thoroughly considering all possible factors, weighing the rentvesting pros and cons, and evaluating your personal situation before deciding whether to buy investment properties.
When considering buying a rental property to rentvest, ask yourself:
If you answered yes to most of these questions, rentvesting could be a viable strategy for you to enter the property investment market while still enjoying your preferred lifestyle.
Our Tremains team is here to help, and our friendly consultants can sit down with you to look into your ideal market and how it can benefit your situation. Get in touch with your local Tremains Real Estate consultant today to see how rentvesting can work for you.
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