Episode Details

Nice family homes in blue-chip suburbs are becoming increasingly difficult to acquire from an affordability perspective. This also puts pressure on one’s capacity to fund an investment strategy whilst repaying a large loan. So, a few years ago, a strategy called ‘rentvesting’ was popularised. But this has some limitations. I have formulated an alternative strategy which I’ll call livevesting.

What is rentvesting?

Rentvesting involves renting a house in a location where you would like to live. One that has all the lifestyle benefits and amenities that you desire, thereby freeing up as much cash and equity as possible to allow you to invest in pure investment locations. Investments that you can make without needing to consider lifestyle considerations.

In reality, there's a couple of challenges associated with rentvesting.

Firstly, there's an emotional consideration. That is, some people feel more comfortable living in a home of which they own rather than renting. To some people, rent money feels like dead money.

Secondly, schooling can be a concern. There's not a lot of certainty with respect to the longevity of the renting relationship. That is, the landlord can decide to sell or occupy the property and not renew your lease. If that happens, you've got to find a new home. And if your children are attending a school in that location, then you’re forced to find another house close to their schooling. That can be difficult at times, depending on what sort of rental stock is on the market.

And lastly, the other complication with rentvesting is a possible change of mind. If you implement a strategy that requires you to rent for the next twenty years, what happens if you change your mind in five years’ time? You might find that because you have exhausted your borrowing capacity, you’re

Spreading yourself too thin

One of the challenges that people are finding today, especially in light of the tighter credit market, is that they could be spreading themselves too thin. That is, their borrowing capacity might restrict them from being able to afford the size of home or location that they truly desire. Plus, their borrowing capacity might restrict how much they're able to invest once they have purchased their desired home. In this situation, sometimes people are seduced into compromising on the quality/location of both home and investments. In this situation, it's possible for people to end up owning two or three very average quality property assets.

A new strategy: Livevesting

In short, an alternative strategy is Livevesting. This involves using your full financial capacity to buy the best quality home in the best location that has all the investment fundamentals but also fulfils your lifestyle requirements.

This strategy has added benefits if you're able to buy a home that's located in a really good quality public school zone for two reasons. Firstly, properties located in public school zones that contain highly desired and rated public schools, tend to exhibit higher capital growth. And secondly, if you're able to buy a home in that school zone, perhaps that negates the need or desire to send your children to private schools, thereby saving you a lot of money.

The premise behind the Livevesting strategy is that you occupy a property that is expected to generate a significant amount of tax-free capital growth. You service the inevitably large mortgage through the period of occupation with the intention of crystallising the tax-free capital gains when you downsize in the future (i.e. prior to retirement). Part of that equity will help you fund retirement.

This strategy is distinct from one that involves you buying a home with a view to eventually repaying the mortgage and occupying that property for the foreseeable future. The benefit of this strategy is it allows you to direct all y<