Should You Buy A House OR Rent In 2024? Rentvesting Wealth Strategy

Should you buy a home to live in, or should you invest elsewhere while renting, a strategy known as rentvesting?

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In this article, I will show you the pros and cons, along with a case study that includes the numbers, to help make your decision easier.

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If you're interested in my thoughts, keep reading…

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Understanding Rentvesting

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I want to give you an idea as to why people listen to me and why you might want to listen to me…It is mainly because: I've been investing into real estate for over 11 years.‍

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I have continued to rentvest and have tried every system and strategy available. I made a bunch of mistakes and with those mistakes, I've learned:

• What is the best way to go and build a property portfolio; and
• Where you can live a life financially free.

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I founded one of the fastest growing buyers agencies and we pick up about 15 properties every single week. 

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So, if you're interested in using the buyers agency, book a FREE discovery call with my team!

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Now you know exactly what I mean by rentvesting. You might find this article valuable if you're in the same situation I once was. So, I'll make it very easy for you.

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The Two Paths: Buying vs. Rent Vesting

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You have two options if you're looking to get into the property market. So, you're getting onto the property ladder, thinking: "I can get the first homeowner grants and stamp duty concessions to buy my own place" or "I can rentvest, which is rent where I want to live and invest where the numbers make sense."

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Let’s discuss what the homeowner grants and stuff like that look like. You may say: "The government's giving me some sort of concession or grant to incentivise me to purchase something."

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Usually with these grants, you have an upper limit and it could be anywhere between: $650k to $1 million.

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However, this varies by state and the type of property you buy. (I'll leave it to you to decide if you think researching this is worth your time.) You are essentially getting incentivised to buy something that may NOT be a great option long term. 

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Now, there are pros and cons and I'm going to be completely unbiased about this.

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The Three Pillars of Decision-Making

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I'm going to use my example, I'm going to use a case study and we're going to talk about three main pillars:

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Number 1: Lifestyle

Number 2: Borrowing Capacity

Number 3: Long-term Wealth

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You either have the option of:

• Being incentivised, getting the grants and going down that path where you may have to live in the property for 6 months; or 

• You can continue living your current lifestyle and invest elsewhere, but you forgo the grants available to you later since this would be your first property.

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Lifestyle Considerations

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Let's talk about lifestyle if you decide that you want the grants. You might be in a position where: You are going to have to purchase a property in a location you don't actually want to live in.

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This is usually determined by your budget. For example:

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Your budget is $650,000.

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You might say:  “Well, if I'm living closer to the city, I definitely cannot purchase anything. But, if I want to purchase something and get the grants as well for $650,000, I'm probably going to have to move out into Western Sydney or an area that's less desirable for me.”

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But everyone's different. You might be someone:

• That grew up in the west and you're happy living here; or 
• That is not even in Sydney and you are living in a regional town where it makes so much more sense, because buying a house there is pretty much the equivalent of a unit in Sydney.

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As you can tell, there are numerous situations that could occur. I'll use an example that frequently comes up when I make videos on my Youtube channel or with people who reach out to me, saying: 

“Ravi I live in Sydney or I live in Melbourne and all I can afford is a one-bedroom apartment. I want to take advantage of the homeowner grants. Should I do that or should I just use that money and invest somewhere else?”

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My answer in 99% of the time is the same thing, which is:  “Is your intention to live in that property long term and you absolutely love it?”

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If it is, then go ahead and make that emotional decision, but don't confuse the fact that this isn't solely an investment. You're primarily taking advantage of incentives in the hope of gaining some growth in the property.

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When it comes to lifestyle, you will have to relocate into an area that you might not prefer, so you can save money by not paying some stamp dues.

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Now, doing something is still better than doing nothing. So if you're putting your money to work in an asset, that's obviously a good thing. But, if you're young and compromising your lifestyle just to make more money long-term, is it really the right move?

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When it comes to lifestyle, if you can keep renting in a place you enjoy and still build wealth through real estate investing elsewhere, that probably makes the most sense.

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I've been doing it since my 20s.  Now at 32, I still rentvest. As of now, it's still the best option for me.

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Financial Impact and Borrowing Capacity

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The next point I want to talk about is: Borrowing capacity.

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If you simply go out there and say: “Okay, I'm going to buy a place for 650k and I'm going to live in that property.”

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This actually could negatively affect your borrowing capacity, because that property you're purchasing is NOT generating an income.

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Now, the counter to that is: “Well, if I move into that property, I'd no longer have to pay rent.”

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This is true. However,  if your rent is actually going to be less than the amount that you have to make as your repayments, your borrowing capacity actually goes down. 

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Not only that, you also have some tax advantages if you are to have it as an investment property.

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Now, by no means do I look like an accountant. Actually, I probably do look like an accountant or maybe someone in I.T. (information technology), but I'm definitely not good at either one of those things. That is why I outsource things I don't know how to do and one of those things is: accounting.

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So you should speak to an accountant when it comes to tax benefits that you can get when investing into a property. But for now, for the purpose of this example, it probably serves no purpose. It probably makes no sense to go down that path because:

When you live in that property, you don't get the deductions available when it's an investment property.

Now, if you purchase an investment property and the yield was really good, you might find that because it's generating you a good enough income, your overall borrowing capacity has:

• Stayed the same; or 
• Diminished slightly.

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This is very beneficial for people like yourself that are looking at building a property portfolio.  Usually, what happens is: People will purchase their own house. 

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For example: You have a family with a household income of $250,000 and you buy a million-dollar house, your borrowing capacity is basically non-existent.

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Today, with current climates around such as:

• Borrowing capacities;
• Bank lending restrictions; and 
• Buffers in place.

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It's extremely difficult to borrow. So, if you're going to build a portfolio, that's probably not the right way to do it. 

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Building a Long-term Wealth

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The final point is long-term wealth. If you go out there and say: “I'm doing the right thing. I'm investing and I'm buying a place.”

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Well, ask yourself: Are you doing it the right way or are you doing it the average way? Average people get average results and average people also walk away from working when they're 65 or 70, and still not retiring financially free. 

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Ask yourself again: “If I'm going out there and getting advice from someone who's probably going to work till 65 they have no choice, and then have a mediocre retirement, is that really the person I want to be listening to?”

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To be honest, what you want to do is:

• Get in touch with the right people; and 
• Get the right team around you. 

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I'm not just talking about property. Let's put that aside for a second. If you're going out there and start up a business, you want to get advice or mentoring from:

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• Someone who's run a business in that same industry; or
• Someone in a very similar industry.  

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This is going to give you the best advice, right? You wouldn't go out there and say: “I'm going to set up my own hairdressing company but I'm going to take advice from my uncle who probably has no idea how a hairdressing company works because he works at a bank.”

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Your uncle is still going to give you the advice you want and you're probably still going to listen.  However, you're getting the wrong advice from the wrong person, which is absolutely going to screw you over.

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It's the same thing now with property, isn't it? If you say: “I'm going to ask my Uncle who bought a house 30 years ago and he thinks he's done really well because he maybe got one property. Yeah, I'm going to ask him how he built his property portfolio!”

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In reality, he hasn't done it in a climate like today. So you want to just be in the right conversations with the right people.

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Additionally, when it comes to growing wealth by doing it this way, it's going to hinder your ability to build a property portfolio because: You are now buying with emotion. (Remember, you still have to live there for 6 months.)

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So, if you're telling me: “Oh, I only bought it for the numbers.”

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Well, good luck for the next 6 months because you're probably going to hate your life, having to come home to that every day and then trying to convince yourself by saying:  “No, it's okay. I'm building long-term wealth.”

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But I think there's a sustainable way you do this and the way that you would do it is through: RENTVESTING

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Why? Because your life doesn't change but actually improves as you now have: An asset in the background or the “machine” that I've often referred to for the last few years 

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This machine continues to grow. Your salary is the oil that goes into the machine, and the machine keeps growing. It's fantastic!

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Now, the idea is if:

• You have this machine that's growing in the background; and
• You still continue to live your best life renting where you want to rent

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Then….you are in the best position possible! You have no compromises. 

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In fact, if that property is purchased well within the first 18 months, the rent that's coming in despite interest rates being so high, will probably take care of— if not all, most of your expenses. Your day-to-day doesn't change and this leads me on to the case study that I'm going to share with you right now.

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Case Study

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One of the most popular areas for first time buyers is Parramatta, which is often referred to as the second CBD of Sydney. 

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As you can see here, the median house price is now:

• $1.55 million (which is insane!)

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Then you see units which are the average price point of about:  $630,000.

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Now, if you have a budget for $630,000, you can say:  “Okay, well, I don't necessarily want to live in Parramatta, but I could purchase this and if I do purchase this then this is what I'm looking at.”

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I’ve said before that we've gone through one of the best periods to hold real estate.  Despite that, the medium price has gone from:  

• $625,000

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All the way up to $630,000 in what would be one of the greatest times to own real estate.

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Now, instead, if you went and said: “Okay, $630,000. I could go into an area like Dubbo then purchase a house there.”

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I would find myself purchasing a property for $375,000.

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That is now worth about $560,000.

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Could these results repeat again? Not sure. But when we look at the numbers, when we look at the supply and demand, we could probably see stronger growth in an area that doesn’t have much supply coming in. 

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In Parramatta, you have towers being developed right now and they're still coming onto the market. Whereas, you don't have the same thing in somewhere like Dubbo. (I'm not saying Dubbo is a really good area and that you should go out there and buy something. I'm just using it as an example.)

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Now, where it gets even better is if you were to say:  “Well, actually, I currently rent in Pyrmont for $850 a week with my partner.”

Yes…rents have increased considerably. In 2021, I could get rent for about: $600 

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Now, it costs me about: $875

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It doesn't feel so good, but if I was to buy the same place I'm living in right now, I'm looking at paying a million bucks.

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When I go ahead and see how does that actually affect me, I'm paying:$1,300 in interest plus principal repayments by just being in the same property. So if I was to purchase the property, it would cost me: $1,300 a week 

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If I rent the same property it is:

• $850 a week plus I don't have to pay all the other bits and pieces like rates, insurances and strata.

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My Final Thoughts

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So to me, it seems like an absolute no-brainer that if you are looking to grow wealth, you should be rentvesting in today's climate. 

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I don't think that's going to change. In fact, I think a lot more people should adapt to having the mindset that: They should rent for the next 5 to 10 years.

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Yes… rents are going to go up. If rents go up in your area and you:

• Bought somewhere logically - the rents somewhere else are going to grow a lot more and at a faster pace; and 

• Bought well - those properties will outperform anything you see locally.

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To recap everything I wrote: You need to think outside of the box. If you listen to average people, you'll do average things and get average results.

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But if you're reading my blogs and watching my Youtube videos, you're definitely not wanting average results, so if you need any help when it comes to investing in the right areas, contact my team in Search Property. 

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If you're out there educating yourself, continue, and know that: SPEED is your friend.

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In a market that's moving as fast as it is with all these potential talks about:

• Rate cuts 
• Interest rate cuts; and
• Tax cuts,

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You will have to make the decision on what's more important for you.

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I hope you’ve learned a lot from this article.

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I'll catch you guys in the next one!

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Thank you!

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