Is your dream suburb too expensive? 'Rentvesting' could be the solution

Rentvesting is where you live in one place and buy a house in another. But what are the pros and cons? Frances Cook weighs them up.

There’s a very Kiwi idea that owning the home you live in is the pinnacle of success. You get the keys, throw a housewarming, maybe dig a veggie patch, and settle in with the satisfaction that you’ve “made it”.

But what if that belief is getting in the way of smarter decisions?

Let’s be honest, trying to buy your first home in places like Auckland or Queenstown is brutal.

Plenty of people need to live in those places for work reasons, yet prices are sky-high, and every extra year it takes to save that deposit is another year of compromise.

Smaller house. A landlord. Longer commute. Another year where you’re paying someone else’s mortgage, instead of your own.

But what if you didn’t have to buy where you live? What if you could rent your dream lifestyle, and invest somewhere else? That’s the idea behind rentvesting, and it might be worth a look.

At its core, rentvesting is exactly what it sounds like.

You rent your home, and buy a house elsewhere, typically in a more affordable area with better financial returns.

It’s a strategy that Ilse Wolfe knows well. Wolfe is a seasoned property coach and investor who recently made the move herself. She sold her Grey Lynn home and shifted to a rental on Takapuna Beach.

“Rentvesting is basically upgrading your lifestyle, going to a location that you want that’s usually more premium than where you could afford to have a mortgage,” she says.

“So it’s a lifestyle upgrade, for less of a weekly outgoing.”

Wolfe and her husband looked at the cost of owning their million-dollar home in Grey Lynn, and compared it to what that same amount could do if they were to buy in a cheaper area, rent out that house and have the mortgage paid by tenants, while gleaning a little extra income in the process. And all while renting a lovely home themselves in a beachside area where properties tend to be even more expensive than in Grey Lynn.

Here’s where the emotional friction kicks in. For most of us, the idea of renting forever can feel… unsettling.

Especially if you have kids. Especially if you’ve finally found a school zone you like. Especially if you want to redecorate without having to ask for permission. Or if you’re just tired of moving house every time the landlord decides to renovate.

Wolfe understands that hesitation. She says one of the biggest mental hurdles in their decision was whether they were about to uproot their children’s lives, including school and friendships.

But after six weeks in their new rental, they were sure that it had been the right call, even if it was daunting at the time. Ttheir landlords live next door, have owned the property for decades, and treat it with pride. She credits that for creating a sense of mutual care and community.

“They come around and check on us,” she says. “And the cool thing is… we have neighbourhood drinks. All of the neighbours on our street, three or four times a year, get together. So we’re in a real community here and the kids are invited.”

Of course, warm fuzzies aren’t enough. Rentvesting only works if it stacks up financially.

If you’re a first-home buyer, you may also need to change strategy, if you’re mainly saving into your KiwiSaver.

Your KiwiSaver can only be used for a first home deposit if you’ll actually be living there.

You may also need to bring in a pro to help you run the numbers.

Wolfe emphasises that anyone considering rentvesting should chat to an accountant early, as the move could have implications for things like ownership structure, interest deductibility, or capital gains exposure.

She also stressed the importance of not pushing your weekly rent budget to the limit just because a property is exciting. There is the possibility of rent increasing, and you need to give yourself buffer to afford that possibility.

“You don’t want that mental load on top to have that concern. There’s enough to juggle these days.”

Wolfe said more of her clients, especially younger couples, are now rentvesting as their entry point into property.

Some already have families and choose to rent a home they love, while using their deposit to purchase cashflow-positive rentals in more affordable parts of the country.

She described one couple who had lived in their rental for years and didn’t want to downgrade just to “get on the ladder.” Instead, they used their savings to buy two investment properties in regional New Zealand.

Wolfe helped them turn each one into a four-bedroom rental, earning more than enough to cover costs, even after the arrival of their first baby.

“They’re making money from a rental property, they’re living in a home that’s better than what they know they could otherwise afford,” she says. "So they are moving forward and they now have two rental properties before they’ve even bought their own home.”

Rentvesting isn’t a silver bullet. It won’t work for everyone. And it’s definitely not the mainstream path — yet. But if you feel like you’re stuck, priced out of buying where you want to live, and getting nowhere fast, then rentvesting could open up another path.

One where you still make progress, even if it doesn’t look like the traditional “first home” story.

The information in this article is general in nature and should not be read as personal financial advice.