Exiting Rentvesting

As the title suggests I am looking for people who went down the rentvesting path but then found a way to exit and buy their 'dream' PPOR.

There is a lot of theories on how to do it but is there any real stories of people who have done it successfully?

Have you sold all of your portfolio to buy a home debt free?

Have you sold one/some properties to get a deposit?

Rentvesting seems to be a relatively new thing so I'm not sure if many people have done it. I think it's a really good way to get ahead and it's the route I've gone down but realistically I don't want to rent forever or get into a postition where I'm equity rich but cash poor as I think that defeats the whole purpose of investing.

 

Ppor is the ultimate cash poor equity rich strategy. What are you asking, really?

 

I think rentvesting is a stand alone strategy of choice rather than a means to purchase a PPOR although I can see how it can morph into that strategy too.

How people do it would depend on the size of their portfolio and the equity built up within the rental properties.

 

Rentvesting might be a new term but it's an age old idea.

It depends behind the motivation as to why people rentvest
1. to live in a location where yields are very poor and pay rent which is a lot less than what a mortgage in the area would be. Use an amount of money that would be equivalent to mortgage in a substandard area but not have any extra money saved
2. to live in a location where yields are very poor and pay rent which is a lot less than what a mortgage in the area would be. Save the difference between rent and mortgage for future deposit

In the first case people use all their available money to live in a better area but don't leave money to save to get out of rentvesting. In the second they are renting for the reduced cost but saving as well.

Combined with not having a PPOR debt and investing for capital growth and/or

In our case we rented the worst of places and saved plus an IP. We sold the IP and used the profit plus our savings to buy PPOR

 

Why would you end up being equity rich and cash poor because of rentvesting? If anything, the point of rentvesting is that it is often financially superior, so you can choose to take it as equity or cashflow or whatever really.

 

We've been thinking about it. Our intent was never actually to rentvest but it just turned out that way as doing continual development projects became quite capital intensive.

The current thinking is that once we're in a comfortable enough capital position we find a suitable development site to build a high end duplex, complete the project, sell off one side and live in one side.

But then, whilst we would ensure it is nice that probably wouldn't really be our "dream PPOR" and we'd probably end up selling that wanting to buy a suitable block for a knock down build and our own design. I guess it'd be rinse & repeat of the duplex scenario....

We may choose to liquidate or rationalize some of our passive portfolio but a few strategic properties will remain playing a role.

 

I think @Westminster hit the nail on the head RE motivations. People need to have their goals, align it to their personal situation and do what it takes to get there. Still, it would be interesting to see how people went out it themselves

 

I should clarify a little, the cash poor equity rich refers to some people I see who have large portfolios but don't have much spare cash due to the fact that once there properties start to become too positive they purchase another IP or development project and although their net worth is increasing it's not putting money into their pocket each week and are still paying rent or a largish mortgage on their PPOR and tied to their job.

@Morgs i have also fallen into Rentvesting as I was single when I started and I couldn't afford to live where I wanted but as I get older things will change.

My partner and I currently pay $500pw rent (our housemate pays $170pw so we only really pay $330) to live in a house worth close to $1,000,000 to me this is a no brainer and has allowed us to buy another 3 IPs in the last 18 months. However down the track once kids come along etc I don't want the uncertainty that renting can bring, I want to be able to paint or renovate or extend the house I'm living in, so I'm looking for people who have done it.

 

There is something about having your own house though.
Being able to smash stuff into walls, not weed the garden etc without someone hanging crap on you.

Maybe its just me. But its a case of do as I say, not as i do. My garden is weeds galore and messy as. There is no way I would allow my tenants to do what I do

 

I think it all comes down to how much do you want your PPOR now at the expense of building your portfolio slower. If you have equity in your IPs then you could sell some or all to buy a good deal ppor then start investing again in time when you have the capacity. Its just a trade off. What do you want and when, and what are you happy to sacrifice for it and what aren't you willing to sacrifice. Its often difficult to come to a decision because what usually drives PPOR motivations is quite different to what drives your investment decisions. Ultimately you will have to come to a compromise of some sort.

 

Switched from rentvesting to PPOR about 6 months ago. Mainly involved crunching maths on which property was best positioned to minimise interest (variable loan with offset), had the lowest negative impact on rental income and gearing, had run its course re depreciation (a low $4k a year instead of five figures), knocked me off the land tax radar, and whose lease was ending soon.

Losing $40k/year of rental income for the ppor (before any expenses) is painful but the peace of mind of being my own landlord and all the othet cost offsets and paying little interest made it work in the end.

 

Totally agree.

We are not rentvesting per se as we own our PPOR.

But we have bought our next PPOR. We did that 2 years ago (we have even bought another IP since then as well).

Since we bought it, it has been rented (to the same great tenants). The yield is not that great (about 2.4%) but the capital gain has so far been $250K to $300K.

That is the reason why we bought this property. Two years ago, we weren’t ready to buy this property as our next PPOR. Our research lead us to believe that this area would experience significant growth in the next few years. So much so, that when we were ready to buy, the property would be above our budget.

So, we bought the property in February 2016. The IP is negatively geared (the shortfall is borne by our self-funded pension) but once we sell our current PPOR, the property will not have any debt (hopefully).

We knew what we wanted, we knew when we wanted it and we knew what we were willing to sacrifice.

I believe this is mandatory for all investments, especially if one wants to be successful; not that everyone does it .

 

May as well buy that nice ppor now then. You won't be retiring early with kids lol.

I reckon investing in the best ppor you can get is a great idea personally. Sure, there is no rental income or deductions but there is also no land tax and no capital gains tax to pay when you sell. You'll look after it better than tenants will an IP. Even if you never had IP's a perfectly viable strategy for the average Joe is just to keep upgrading the ppor and then sell down when the kids flee the nest finally.

 

We bought PPOR first, IP's later. Poured as much money into PPOR as possible to reduce the mortgage to less than what rent is for a similar house around the corner (on P+I payments!). Works well for us - we can do what we like to the house, and have a certainty that we'll be here as long as we like.
Our networth may not be as high as it could have been, but that certainty is priceless now we have kids.

 

Considering that many on this forum/this unique segment of society would generally utilise every last iota of borrowing capacity to invest - this means that generally I find that most looking to then leave renting and buy their own property generally have marginal borrowing capacity for a residence. I generally advise clients in our discussions that if they're wanting to buy a PPOR, they should do it sooner rather than later - especially with the ability to debt recycle if you have a budget which isn't extreme it can give you the best of both worlds.

The general response I've seen the maxed out borrowers use is to either do a partial sell down of their existing portfolio or move into a previous investment property.

 

The thing I don't like about rentvesting is that most of those doing it are not taking advantage of a CGT free asset and some are even paying large amounts of land tax -which could be reduced by living in a property.

 

Am in a similar thought space as OP.

I’ve currently just moved into my 1st IP (5 years post purchase) renovated and am really enjoying being 10 mins from Sydney CBD & work

I intend to move out of the IP within the next 12 months and then rent again in the same area,

Plan for short term is to acquire 2 further IP’s which Ill then have maxed servicing for the time being. I’ll then more than likely look at my higher yielding IP’s and work out whether I can move one or two (over time) to a P&I to reduce the debt & increase CF over the next 15 years., am considering AirBNB'ing my Sydney apartment which will speed up this process.

Come 15 years later, I’d have forced equity along with any growth built up over the portfolio and a reduced debt position giving increased CF. I then either sell an IP or complete a small development or SD on existing IP to free up further cash and/or extract equity to use for PPOR. My CF from the IP portfolio could then come into play to contribute to any PPOR mortgage however I will still work to some capacity to support family.

Lots of dependencies and a 15+ year renting horizon….. I also suspect current credit tightening will work to similar cycles so I may begin purchasing again in the next ~5 years or hold back slowly & grow my servicing for PPOR.

I am planning for the above to ultimately give me a degree of financial flexibility and choice over time with a little bit of leverage in the market through IP acquisition, disclaimer: this is not a "retire through property in 10 years plan"....

 

Can i ask why? (not implying it is a bad move)

 

This makes perfect sense my issue is if I buy something close to what I want it would limit investing for quite some time.

I think I'll be leaning towards doing a partial sell down when the time is right, probably over a couple of tax years then buy a PPOR

@Terry_w you raise a very good point about CGT but I am lucky enough to still have CGT exemption on my first property (which I also got FHOG on) so I think selling that just before it expires will be my first step to freeing up capital