What rentvesting is, and how it helps renters buy a home

By Finance News On Jul 15, 2024

Oscar Wong | Moment | Getty Images

Not every renter wanting to buy a home dreams of ditching their lease. Some wish to remain tenants even as they become landlords.

The concept behind “rentvesting” is that an individual rents their primary residence in one city and then buys an investment property somewhere else that they let out as a short- or long-term rental, according to Danielle Hale, chief economist at Realtor.com.

“It can be a good way to get into the property market,” she said, especially if you live in a city where home prices are out of your budget.

That said, becoming a landlord at a distance can be tricky, and rentvesting may be trickier for a first-time homeowner than buying a property they intend to live in.

“There are some costs involved you’ll want to make sure that you research and consider before you get in,” said Hale.

When ‘rentvesting’ can make sense

Rentvesting may be an option for someone who has a relatively high income from a job in a major city where rents are high and home prices are even higher, said Hale. She said these individuals might have room in their budget to save but find it too expensive to buy a home in their metro area.

“So they would look for a less expensive market where their savings might be able to translate into a nice down payment,” said Hale.

Small investors, or those with up to 10 investment properties, made up 62.6% of investor purchases in the first quarter of 2024, according to a recent report from Realtor.com. That figure represents the highest share of small investor activity in the data’s history, going back to 2001.

Hale said the data does not necessarily distinguish whether the small investors are rentvestors. It also doesn’t specify whether they own their primary residence or a second rental home.

“There’s a lot of concern about big investors getting into the single-family home space and competing with owner-occupants,” she said. “Although big investors have been making headway and growing their share, they’re still a relatively small share of the overall landlord population in the United States.”

The rise of corporate landlords in the U.S.

Some shifts in the market in buyers’ favor may also benefit rentvestors.

Mortgage rates have dropped to 6.85% for a 30-year fixed-rate mortgage, the lowest level since March, according to a new analysis by real estate brokerage site Redfin.

“Somebody with a $3,000-a-month budget can now spend $20,000 more on a home for that same budget,” said Daryl Fairweather, chief economist at Redfin.

She said lower rates are going to be “welcome news” for rentvesters looking for a mortgage. But it will be important to keep in mind that rental prices are coming down as more supply comes on the market.

“They might have a hard time filling it with a tenant if there are other properties down the street that are renting for less,” said…