The traditional notion of home ownership was that of the owner-occupier: you bought a house to live in. However, the surge in property prices across the country has made this more of a dream than a reality. And even with the market coming back 10-15% in Sydney and Melbourne, property isn’t cheap and won’t be. Population growth is high, and money is cheap. 

Barriers to entry in the property market have become more profound in recent times resulting in what’s called ‘rent vesting’.

What is rent vesting?

Rent vesting is the act of renting a property where you want to live, and buying a property where you want to invest. From a purely financial point of view, this strategy makes a lot of sense. 

Why should I rent vest?

Prior to the property boom of the late 90s, the concept of renting was often discouraged, with catch phrases such as “you are paying somebody else’s mortgage”, or “rent money is dead money”, becoming the war cry of an older generation for whom housing was far more affordable than it is in the current climate. 

However, when applied properly, the combination of renting and investing has significant benefits relating to both lifestyle and financial drivers, such as:

1. Improved cash flow using tax dollars and rent to pay for the property you own (investment property).
2. Increase growth potential by not limiting your geographical purchasing focus to areas or cities that you want to live in.
3. Enriched lifestyle by living in a better area and residence (rental) that you would not have been able to afford to buy and live in.
4. Flexibility to move easily to accommodate a growing family, or perhaps a change in employment location, without the entry and exit costs associated with selling and repurchasing.

This strategy can allow people to buy their home sooner rather than later, while moving in later rather than sooner.

However, it does not account for the emotional drivers of property investment, particularly when that property is your home.

Why shouldn’t I rent vest?

Allow me to explain from personal experience. 

Coming from a financial background and having successfully implemented rent vesting for many clients in the past, I remember having the discussion around this strategy with my wife.

I put forward a strong case, and with every point, I made I received an encouraging nod. My wife was impressed with the amount of money we would save by adopting this strategy. By the end of our conversation, I was convinced I had got her over the line. I then asked confidently, “So, what do you think?”

To which she replied, “Ahhhh, no.”

I was bewildered with my wife’s response and asked why. She had several reasons, including the following:

“I want a home that my kids can grow up in and make memories in like I did as a child,”

“I don’t like the thought of not having long term security where I live,”

“I don’t like the idea of not being able to put my personal touch on the home that I live in,” and… 

“I hate packing and moving.”

Although financially, rent-vesting makes sense, as I mentioned earlier, this alone cannot be a determining factor when purchasing a property. Where you choose to live, as opposed to where you choose to invest, is usually based on emotional, and not financial, drivers.

If you want improved cash flow, financial growth, an enriched lifestyle and increased flexibility, then rent vesting might be for you.

Related reading:

Should your first property be an investment property?

What is rentvesting?

Young Australians choosing property investment over first home