Is rentvesting good for long term?

My partner and I are both in our mid 30s with under school age kids. We have 3 properties and we are renting somewhere else, for bigger living space and more choices for childcare. I guess we fit the description of “rentvesting”?

When our kids go to school we would like to move to the better part of the city with better public schools and closer to work. Realistically we don’t have the capacity to take on more loans (due to APRA lending restrictions and also we want to sleep better at night...)

Our IPs are cashflow positive as we have a fair bit of equity built up. With our current debt level we should be able to pay off all our properties by early 50s and retire if we want to.

We pretty much have no hope to buy the area I’m hoping to move to, but we can afford to rent comfortably as the rental yield for the area is pretty low. I imagine we would be renting in that area at least until our kids leave school and even into retirement...

It seems that “rentvesting “ is a pretty new concept due to the very high entry cost in certain parts of our capital cities.

Does anyone know someone rentvesting for long term (more than 15 years)? What are the risks? Would it be any issue rentvesting into retirement?

 

Probably best to read this post and associated thread.
Strategy for growing family - stop rentvesting

Whilst it is a totally feasible strategy "rentvesting" and building up one's portfolio whilst renting elsewhere (many rich people and Hollywood stars do this), experience suggests that ultimately, people (especially those with families), may tire of renting and simply want to have their own place for stability and to do what they like. Also from an investment point of view, building up equity in your PPOR provides a potential capital gains tax free return and an equity pool to create another investment portfolio.

As Phil Ruthven has commented, one of the issues with Australia's rental market is the lack of long term leases which is common in some European countries.
‘Australia is ’50 years out of date … and that has to change’

Hence, one of the risks of "rentvesting" long term is the mismatch in time horizons between ones investment portfolio and rental lease term. If long term rental leases could be achieved it would make such a strategy likely to be more viable without being subjected to landlord risk.

The other risk from personal experience, is that it is often hard to catch-up for that desired PPOR, because desirable properties that are likely to be PPORs generally increase in value at a faster rate than those properties that are IPs. (Of course this comes down to preference from the choice of IPs selected to one's view on a desirable PPOR). So you will need to have your IPs grow at a commensurate rate (including rental increases) against the opportunity cost of not having a PPOR.

Also need to consider rental increases for renting in the future compared to locking in a mortgage at today's prices (i.e. will the rents in your desired location eventually outstrip the mortgage you would have been paying?). Of course, this may be somewhat offset by your IPs and hopefully their increased rents in the future.

Based on my previous post,
Strategy for growing family - stop rentvesting
@Eric Wu coined this simplified model "rentvesting => building up equity => liquidate ( the whole or partial) => using the fund to purchase PPOR => building another portfolio."

Ultimately, it will come down to personal preference, but from the experience, if you do want a PPOR in the future, it is kind of hard to catch-up and beat the market, therefore releasing equity from your IPs to purchase your PPOR and then building another portfolio is not a bad strategy. [I guess if you plan to retire in your 50s and kids are grown up by then, then the PPOR you may want (e.g. an apartment on the Sunshine Coast), maybe different to that what is desired today!].

 

Hi NWH,

I rentvested for about 3 years, so much shorter than the time frame of the question.

I agree with Orac in the post above, that it tends not to be a good long term strategy. Again, property investing is about leverage, time and compounding, and for long terms rentvesters, these will start to work against you as it becomes harder and harder to own in the areas that you most desire.

Where i have seen rentvesting work well is for people who run their own businesses out of their home, and they claim tax deductions for a part of the rent that they pay. Obviously best to discuss with your tax adviser, but this strategy works well for a few years.

Best,
John