Rent vesting has become a very popular investment option for many Australians.

In essence, this allows you to buy your dream home and rent it out until you are confident enough in your finances to manage the repayments.

The traditional concept of home ownership has been that of the owner-occupier: you purchased a home to live in.

Property prices in most parts of the country have risen to the point where this is more of a dream than reality as a result of the surge.

The price of a property remains high in Sydney and Melbourne even after the market has recovered 10-15%.

Recently, property entry barriers have become more severe, resulting in what’s known as ‘rent vesting’.

Rent vesting – what is it?

A rentvestor leases a house in the neighbourhood where he or she wants to live and buys a house nearby where he or she wants to invest.

As far as the financial side of things is concerned, this strategy is a good one.

A growing number of people are turning to rentvesting as a strategy.

Investing in property can increase your net worth and enable you to live a comfortable lifestyle in a property of your choice while growing your net worth faster.

But, does ‘rent money’ really mean dead money? To put it simply, the answer is a resounding ‘no’!

Historically, rent money was considered dead money by people who placed little or no value on owning property. It was aimed at those who were living in the moment, saving nothing, and making no plans for their future.

In the course of generations, this phrase has been repeated and gradually accepted as gospel without anyone challenging its validity.

This continues to be practised as gospel by those who haven’t achieved financial independence themselves.

Even after working 45 years or more, only 18 percent of Australians over 65 are financially independent, according to government statistics.

There can be no doubt about the benefits of homeownership. In contrast, it wouldn’t be appropriate to imply that renters are irresponsible financially.

On the contrary, while each case is different, the financial benefits of rentvesting often far outweigh those of owner-occupation.

There is a lateral thinking component to rentvesting.

In adopting this strategy, people are still prudently acquiring assets; the only difference is that they do not live among those assets.

Australians are increasingly owning multiple investment properties with higher net asset values than what they could achieve as owner-occupiers.

The choice is as simple as exploring the pros and cons of both before deciding what is best for your immediate lifestyle needs and your long-term financial goals.

Rentvesting: why should I do it?

In the late 1990s, the concept of renting was generally discouraged with catchphrases such as “you are paying someone else’s mortgage” or “rent money is dead money”. Housing used to be far more affordable for an older generation than it is now, which became a war cry of their generation.

In fact, combining renting with investing can offer significant benefits both for lifestyles and finances, including:

Rent and tax dollars can be used to pay for your investment property, which increases your cash flow.

Avoid limiting your geographical purchasing focus to areas or cities that you desire to live in if you want your business to grow.

You have the opportunity to live in a more desirable area and residence (rental) than you could otherwise afford.

A growing family may be able to move easily, or perhaps an existing employer may wish to move, without incurring costs associated with selling and repurchasing.

As a result of this strategy, people can buy their home earlier rather than later, and move in later rather than sooner.

However, it does not take emotional factors like home ownership into account when investing in a property.

Why shouldn’t I rent vest?

Although financially, rent-vesting makes sense, this alone cannot be a determining factor when purchasing a property.

There are a lot more emotional and physical disadvantages than financial ones, but that doesn’t mean they shouldn’t be addressed.

In addition to the financial benefits of rentvesting, some people value the assurance that they will never be forced to relocate because their landlord will sell the property to a future owner-occupier.

Being able to care for a pet at your property without permission or banging a hook on a wall for a picture frame is not something others can value.

A person’s decision on where to live is usually driven by emotional factors, rather than financial ones.

In order to improve your cash flow, grow your finances, enrich your lifestyle, and increase your flexibility, rent vesting might be the right choice for you.