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How To Buy Your First Home While Renting?

In 2020, just 31% of Americans were first-time buyers. In contrast, in 2010, 50% were first-time buyers just ten years earlier. As property prices increase β€” going up nearly 20% from 2020 to 2021 β€” more and more first-time buyers struggle to get onto the property ladder. Rather than stay stuck in the renting cycle, many are rentvesting.

Key takeaways:

  • Rentvesting is an attractive strategy for buyers struggling to enter the property market.
  • As with any investment strategy, you risk making a capital loss.
  • Homeowners might find themselves facing unexpected additional costs.
  • Rentvesting could help you build equity without sacrificing your lifestyle.

What is rentvesting?

Rentvesting is where someone buys a house while renting another property. As property prices are higher in more desirable areas, many first-time buyers cannot raise funds to purchase a home where they wish to live. As a result, they buy property in a more affordable neighborhood. This enables renters to earn income and get on the property ladder sooner.

Richest Neighborhoods in London: Notting Hill

What are some of the pros of rentvesting?

Rentvesting isn’t the right strategy for everyone. But it is growing in popularity. What are the pros of rentvesting?

  • Renting is cheaper: In 2020, the average rent will cost $1,098 a month, whereas the average mortgage repayment is $1,159 and $1,747. Therefore, living somewhere cheaper could be cheaper, while earning investment income from your property could be more cost-effective.
  • Investing gives you a cash flow: Rental income reduces your mortgage repayments, which helps improve your cash flow.
  • Tax benefits: You can claim tax deductions on all property-related expenses, reducing your taxable income.
  • Keep your lifestyle: You don’t have to sacrifice your desired lifestyle by moving to a more affordable area.
  • Build equity: If your property increases in value, you’ll make capital gains while not even living in the property.

What are some of the cons of rentvesting?

However, rentvesting is a significant commitment. Check out the cons of this strategy.

  • High costs: Buying a property is expensive, and not all expenses are tax-deductible.
  • Limited by landlords: You’re still under a landlord’s control because you’re still renting where you live. You can’t make property renovations or even paint the walls without permission. Plus, the landlord could increase rent at any time.
  • Additional risks: Investments are always risky. There is the possibility that your property decreases in value, and you make a capital loss.

Four tips for buying a property while renting

So, how can you ensure your rentvesting strategy unfolds as smoothly as possible? Follow our tips to protect your investment property.

1. Sort out your budget

Realtor Darren Robertson advises, β€œMake sure you organize your finances before purchasing a property to rentvest. It can be hard to save for a deposit while you’re renting. Moreover, once you’ve secured a property, you need to budget for paying mortgage repayments and rental payments simultaneously. Speak to your lender or mortgage broker about finding a home loan that suits your situation.”

2. Research the property market

To mitigate risks, research the property market to find an affordable neighborhood with high capital growth potential. Additionally, consider the rental possibilities. For example, is it near many amenities to attract tenants and boost your weekly rental price?

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Inspecting property to buy is very different from inspecting to rent it. Any significant issues, like drainage or mold problems, are your responsibility.

brown and black concrete building under blue sky during daytime

4. Factor in extra costs

Owning a home comes with surprising costs many renters don’t consider. When renting, you pay standard gas, energy, and water bills. However, as a property owner, you must manage these costs yourself. Additionally, you will need to pay for property tax and homeowners insurance. You might find that you benefit financially in the long term, but the short term could hit your disposable income.

Find out how you can rent out your apartment on Homelike.

Listing your property on the Homelike platform gives you access to thousands of home-seeking tenants while providing you with a centralized way to manage your bookings. Get started today by creating your first listing.

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