There’s always controversy regarding this topic. When you decide to invest before you buy to live in this strategy is called Rentvesting, it’s gaining popularity and there are many that have created wealth using this strategy.
As I mentioned it’s called Rent-vesting and It’s actually a common strategy that many people are taking advantage of especially when the price of property to get into the market in the capital cities keeps increasing. It allows people to get into the property market, rather than sit on the side-lines trying to save money for a deposit but the price of property outpacing their rate they can accumulate a deposit.
Now, to elaborate further on the reason this strategy isn’t more common than it is currently is.
There are strong emotional drivers behind people buying their own home to live in
It’s the old saying American/Australian… which ever country you live in usually has the same… the dream is to own your family home.
This creates a sense of worth/self-value and pride. Beware… Ego isn’t far behind.
Now. I’m not saying that many people haven’t made money with their family home growing in value over the years. Many have used lady luck.
However, they have made money without being strategic, because overall the property market has grown (over time). When you use a Rentvesting strategy, you make a more commercial strategic decision based on your financial goals.
2nd problem people face is that they tend to upgrade their family home to a bigger better (more expensive) house.
This is what we call the Keeping Up With The Joneses problem.
See, most people focus on living in the now, the instant gratification. And, investing is a long-term play. Doesn’t give you the warm and fuzzies right away.
So, they upgrade and now still haven’t invested for their retirement.
This is why many rich look poor and the poor look rich.
And the 3rd issue…
The majority of people move houses, due to many different reasons and buy another family home.
They then convert their current family home into an investment.
This is a common problem as the family home may not have been set up strategically as an investment property. So people accumulate assets that aren’t meant necessary for investment, so they have no actual structure or strategy in place except (Hope).
Remember your wealth is determined by the number of months you can not work for whilst maintaining your level of lifestyle.
Your big house, nice car & expensive things. As Shania Twain put it… That don’t Impress Me Much!
Now to the question on why it’s important to invest in property first.
Now, remember that if you’ve already bought a family home, that’s fine. You can still use the below to help invest in property.
Well, firstly you have to drop the ego. That’s the initial thing that gets in the way of not owning your own home.
Even Grant Cardone endorses this investment strategy! So if it’s good enough for him, I guarantee it’s good enough for you.
What do we look for when buying a home to live in?
- Location to employment
- Entertainment purposes
They are the 4 most common top priorities.
Guess what? They are the 4 bottom priorities when looking at it based on investment performance.
I ran an investment business and when we looked at properties this is what we used as the criteria:
Rentvesting Strategy Property Criteria
- Regional investment (next 10 years) both private and govt spending
- Regional investment (past 10 years) both private and govt spending
- Population growth
- Population density
- Average age of families
- Types of family hobbies that live in the area
- Distance to public transport
- Distance to school (kindergarten, primary, secondary, university) both public system and private system
- Distance to local parks
- Distance to local pubs/club/ restaurant
- Current employment types (blue/white collar)
- Current average household income
- Current household family unit (how many kids etc)
- Housing trend shift (what’s currently renting better and why)
- Type of housing (multi dwelling, duel occ, house, unit etc)
- Then next depending on your strategy you look deeper at property types.
If I’m looking for higher tax deductions, I will look at new with depreciating and tax variation benefits.
If I’m looking at flipping I look for perhaps rundown place that’s undervalued that ticks the boxes above.
If I’m looking at cashflow I look for duel occ or multi-dwelling on 1 title that has a high ROI for rental payments.
Again, it doesn’t matter what your strategy is as long as you have one that’s working towards your goal. When you use a Rentvesting strategy you’re making these decisions so that you achieve your financial goals. Not because it might be a nice place to host dinner party’s – or it has a nice pool area… But because the investment specifics stack up.
For example. I had a high capital growth strategy for a while, now the types of properties I’m looking for a higher cash flow properties.
Now can I ask you a question?
Out of the 2 examples of what people look for when buying the family home and what I look for when buying an investment property. Who’s property is likely to outperform the other?
If you chose the family home example, I’m sorry but you’re predominantly going to be relying on lady luck.
However, if you want to be strategic and give yourself the best chances of your property performing well over the years to come. The second option is for you.
That’s why I would always prefer the Rentvesting strategy as it stops you from overcapitalising and removes the emotion.
Invest where you can make money & live where you want to live.
It’s also common for it to be quite a lot cheaper to rent than to own. Also, you have the added advantage that if you have to relocate you’re not left with a dead wood family home that wasn’t built to be a good investment for you.
Now, if you do have a family home with debt & you want to look at investing then you should check out a more detailed article I’ve written Rentvesting Strategy
I hope that this has been helpful.