Date: 20th Apr 2022

For many New Zealanders, we have a desire to buy a home and own our own property. 

That's the 'Kiwi dream' right? 

Bu for most of us, that dream can seem unrealistic in the current market - our incomes lower than we'd like, or maybe our Kiwisaver or savings just aren't quite there. Either way you look at it, getting on the property ladder can be difficult for many Kiwis. 

When you consider buying property, there are three main options that we tend to have: 

1. We can afford a house that we want, for now

2. We can't afford a house where we want to live, so we settle for something below our mark - in another suburb or different to what we really want 

3. We can't afford to buy the house we want, so we rent in the area we want for now, and buy an investment property. 

This third concept is what is known as "rentvesting"; when we can't quite afford to buy our dream home, or in the location we desire to live, so we buy an investment property to get on the property ladder. That property can then be rented out to cover the mortgage, while you rent elsewhere and continue to save for that 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 prices are continuing to increase at steady rates - but you can't afford to do that yet. So, you purchase your investment home somewhere like New Plymouth, Hastings or the West Coast where prices are more affordable, and use that to generate income for your next property where you'd prefer to live. During this time, you rent your primary residence wherever you choose to live until you can afford the home you really want to live in and make your next move. 

Rentvesting is a strategic manoeuvre to get yourself on the property market, generating a passive income on an investment property - which will make buying your second home so much easier when you find one you like, in the right area for you and your family. As you are buying an investment home rather than a first home, or a home to live in, you can choose a property in a more affordable area to start off with. The thing to remember is that it is an investment, and it's ability to actually generate and turn a profit must be factored in when choosing a property. 

Who can take advantage of rentvesting?

If getting on the property ladder is a dream of yours, and you're not quite there, this strategy could be the way to go. 

Whether you're a younger couple or family wanting to find that ideal home to raise your children and build a life, looking to invest in your retirement plan, or just want to get that dream home you've always wanted - rentvesting could be for you. 

Rentvesting could be worth learning about if you fall under these categories: 

• Younger people who would like to buy their first home, but have been priced out of their desired location(s)
• Single parents or new families where the location of raising your family is important to you, but you're not quite in the financial situation you'd like to be in to purchase a home there
• Families or with older children who want to make an investment into their retirement, or their children's future plans with extra income. 

What are the Pros to Rentvesting over buying a live-in home? 

Although you're investing in a home that you're essentially not going to live in, rentvesting has long-term and short-term investments that will set you up ready for the lifestyle you're aiming for. There are pros and cons to any big decision, so we've outlined them for you. Here are some potential benefits to looking into rentvesting to get on the property ladder: 

• Live the lifestyle you want by renting where you want to live. Enjoy the location and benefits of your current location, while you rack up your investments at the same time. 
• Build wealth while you wait. Borrowing money can make things much more expensive in the long run on mortgage repayments - where purchasing an investment property can help your money work harder for you and your future. 
• Save on major costs while you rent. While you're renting your home, your landlord is responsible for all maintenance costs, upkeep and safety of the property, as well as covering council fees and other utility services while you live there - saving you valuable coin. 
• Ease the burden of your property cost by renting it out to someone else. Your tenants help you cover the mortgage with their weekly or monthly rent payments in your investment home, while you enjoy your current lifestyle. 
• Take it easy and go with the flow while you save for your own home. You can mix up where you live if you choose, changing accommodation types, change rentals, or completely change your living situation if you're financially sound outside of your investment property. Live your life the way you want it without the added tasks that home ownership can bring.

What are the Cons to Rentvesting? 

Of course, similar to purchasing a home, rentvesting also comes with its downfalls that need to be considered when making the decision of whether to, or not to, purchase an investment property. If the cons outweigh the pro's, we recommend looking into other options, however it is important to take them into consideration for your current situation. Some of the cons of rentvesting can include: 

• Making an emotional sacrifice - choosing to give up on "the Kiwi dream" for a while by renting a little longer, and buying out of the area can take an emotional strain when you feel ready to buy a home, and it's not quite the one you want. 
• Loss of control. Sometimes it's hard to let go of control - as a renter you can't just change the wall colour, or make any changes to your home, like you can if you buy a live-in home. The thing to keep in mind is that it's not forever and your time will come. 
• There can be a risk of peer pressure from those around you who feel that rentvesting is not a great decision, even if at the time it can be more financially viable for your situation. As Kiwi's we live for the 'Kiwi dream' and owning a home, so there may be people around you who don't understand or try to change your mind. 
• The old saying "rent money is dead money" - with the idea that you could be investing that rent money to benefit from this strategy. This isn't necessarily the case - however if you choose to "rentvest" and then don't buy a property, you're not rentvesting. Investing that surplus money into a property for financial benefits is the strategy to get you to that next step on the property ladder, and it is a big investment. 

What should you look out for when considering Rentvesting? 

If you're looking to purchase an investment property to take that step onto the property ladder, it can take a fair bit of work. Being sure to choose the right property for your situation and time commitments is important to make sure you maximise on the investment and start generating capital through it. This also applies to anyone looking to purchase a property in general. Here are our top factors to consider when looking for your next investment property: 

• Make sure to find a property that is cash flow neutral and are more likely to have the potential for high rental return. 
• Ensure that you choose an area to buy your investment property that you can afford without stretching your finances. Be sure to take into consideration the cost of any maintenance that might need to be done before tenants can move in. 
• Consider areas that are more likely to increase in value to give you more capital gains. 
• Where you can, aim for a low maintenance property to save costs on repairs before you bring in tenants. 

What areas are ideal to look for a rentvestment?

So, you've decided to take the next step and search for an investment property. When you look for this property, it's important to look for one from a purely financial perspective, not necessarily the look of the house (other than assessing maintenance). Keeping that in mind, here are a few areas that could be considered for rentvesting:

• Dunedin City: With a median price of $635,000 and a high volume of properties being sold compared to its counterparts in the Otago region, Dunedin could be on the cards for a rentvestment 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. 
• Whangarei in the Northland region is a great substitute for the Auckland region to buy an investment property. Whilst the Ruapehu region has a lower median of $355,000 for property, Whangarei has a higher population density with a median price of $555,000, making it ideal to purchase an investment home. It's got a median rent of around $400 per week for a three bedroom home, and gives a great chance for increased value & capital gains. 
• Wellington, when it comes to city living in the regions, is an ideal 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 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 investment property. 

Rentvesting can be such a valuable investment if carried out carefully to suit your current lifestyle, and desired lifestyle on the property ladder. We highly recommend sitting down and considering all possible factors, their pros and cons, and your situation before making a decision on whether to purchase an investment property. 

Our Tremains team are 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 benefit you.