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Should empty-nesters consider rentvesting?

Should empty-nesters consider rentvesting?

Rentvesting, property investments
by Lucy Dean 0 comments

Rentvesting is generally "more popular" with young Australians, but older Australians should “definitely” consider the strategy as well, Propertyology has said.

According to Simon Pressley, the managing director of property investing service Propertyology, there aren’t many older Australians who have pursued rentvesting — an investment strategy where the renter lives in a property that suits their lifestyle needs while simultaneously receiving rental yield from their investment property or properties.

There are two reasons for that lack of interest in the older demographic, Mr Pressley explained. Older Australians may “just be too emotionally attached to the family home” after what could be 40 years spent living there, or it could be that older Australians just “haven’t thought of it”.

“I think if more became aware of it [rentvesting] and looked at it properly, you would see a lot more of them do it,” the managing director said.

“It's not just young people [who rentvest], although there is no doubt that it is more popular [with] young people. We have got some real-life clients that are of the Baby Boomer generation and their motivations are completely different.”

He argued that Australians “just don’t invest enough” and added that the aged pension may not be enough to live off comfortably.

Giving the example of an empty-nester couple with five to 10 years left in the workforce, $150,000 in super and “pretty good equity” in the family home who realise that their super “isn’t going to last long”, Mr Pressley said that rentvesting can be a retirement strategy for those with little time.

He further detailed: “One client, in particular, looked at the pros and cons and made a conscious decision to sell their family home. The house was worth $1.2 million, but they still owed about $400,000, so they sold the family home.

“Now, they've got $800,000 dollars cash in the bank. They then went and rented a place… the place they were renting was actually offering a much better lifestyle than their family home.”

Additionally, the couple put that $800,000 towards four investment properties worth $2 million, with the rents covering the repayment costs.

He argued that if the average rate of value growth was 5 per cent over the four properties, “hypothetically speaking”, then 5 per cent of $2 million worth of investment properties would work out to have greater value 10 years down the track than a hypothetical 5 per cent growth on the family home.

Despite what Mr Pressley presents as a potentially lucrative prospect, the strategy hasn’t caught on widely yet. The director of wealth advisory Empower Wealth, Ben Kingsley, said that, as a broker, he hasn’t seen a large proportion of older Australians considering rentvesting.

However, with the government making “some movements in that space” to allow certain lump sums to be contributed to super nest eggs, “[we] probably may see these Baby Boomers starting to say: Wow, I could experience some city living for several years and see if I like that and then potentially a sea change and then a green change.

“I think it would have attraction so long as it didn't have these drawbacks around how it affects their pensions or their super, and I encourage government to do more work in that space.”

The two industry members agreed that rentvesting comes down to personal preference, with Mr Pressley, in particular, noting that potential rentvestors “have to think it through fully”.

Should empty-nesters consider rentvesting?
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