As house prices have steadily increased and interest rates have risen ‘rentvesting’ has become an increasingly popular strategy for Kiwis who can’t afford to buy the type of property they would like to live in but still want to get a foot on the property ladder.

What is rentvesting?

Rentvesting is a home buying strategy that switches the traditional model of home ownership on its head. Rather than buyers living only where they can afford, rentvesting allows you to rent where you want to live and buy an investment property in a more affordable location.

The idea is that some years down the track the rentvester leverages the increased equity and capital gains in their investment property to buy a house in a location they want to live in, or alternatively buy a second investment property.

Who does rentvesting suit?

Kiwis working overseas
Young people who have been priced out of desirable inner-city locations.
Households where the location of raising a family is important, but who also want to build wealth through property.

What are the pro and cons?

Pros:

Lifestyle benefits, as you can live in your preferred location.
Aotearoa property has historically shown positive capital growth and the potential rise in your investment property’s value helps you build wealth.
Flexibility – if you are renting you can move around the motu and keep building equity in your investment property.

Cons:

Rentvester buyers will not be able to access their Kiwisaver funds or government home loan benefits for investment properties as these are only available to owner-occupiers.
Cost risk – if your investment property remains empty for any period you will have to pay the mortgage costs on top of your rent and may be required to fork out for expensive repairs and maintenance
Loss of control – if you rent you can be told by a landlord to vacate the property at an inconvenient time.

What to look for in a rentvestment

Properties that are cash flow neutral and where rent can cover mortgage payments.
The golden rule of rentvesting is to only buy what you can afford and never stretch yourself financially.
Buy in an area where houses are likely to increase in value and provide you with capital gains.

Properties that are low maintenance.

Ian Keightley, Head of Operations, Raine & Horne New Zealand said: “People who are renting for a reason and have enough money for an investment property deposit should absolutely consider this strategy.

“It is another way to build wealth through property. Potential rentvesters need to do careful due diligence and talk to a trusted national real estate network which can advise on the best areas around the country to buy in from an investment and rental perspective and flag any hidden pitfalls.”

Whether you want to sell or buy a property, don’t hesitate to contact your local Raine & Horne office.

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