Faced with rising property prices in major urban centres such as Sandton, Cape Town and Pretoria, Millennials and Gen Z are adopting more flexible approaches to wealth creation and financial security.
Rather than buying where they live, many are using rental income from investment properties to build long-term equity and, ultimately, help finance their future dream homes.
Rather than stretching themselves too thin financially to buy in high-demand areas, many Millennials and Gen Z are choosing to purchase in more affordable regions, with the intention of renting those properties out for income. At the same time, they continue renting in locations that align with their lifestyle. This allows them to enter the property market without being tied down.
According to Investec, of the 6.8 million homeowners in the country, around 1 million own more than one property, and 40% of this figure falls into the 35-49 age range, with Gen Z also gaining prominence in the trend.
“There is a mathematical case for rentvesting that's worth unpacking,” says Regard Budler, chief executive officer of BetterSure Financial Consultants. “Under certain market assumptions, a R100k deposit on a R1m home means your investment grows on the full property value, not just on the cash you put down.
Over 20 years (with a tenant helping to service the bond), that same R100k can build roughly R3.2m in property equity, compared to around R466k if invested at 8% in a balanced unit trust. This is the quiet power of gearing. It's the difference between saving towards a dream home and steadily building one, one tenant payment at a time."
Investment property comes with a different risk profile: Owning a rental property is not the same as owning the home you live in, and this is where homeowners can get caught off guard. With tenants involved, there is potential for missed payments, damage to your property, and vacant periods. These realities can impact returns.
Tenant-related risks can include damage caused by improper use of the property and issues arising from tenant negligence, so it is important to do regular property inspections and to familiarise oneself with the conditions of the home cover to avoid situations where preventable tenant behaviour could lead to complications during the claims process.
Smart strategy, or risky business? Rentvesting can allow for earlier entry into the market and creates the potential for passive income over time. The more you build your portfolio, the closer you can get to your dream home, as older properties will start paying off newer properties.
The appeal of rentvesting becomes clear in high-cost areas such as Cape Town’s Atlantic Seaboard. According to industry estimates, owning a R2.5m apartment in such an area could cost around R32,000 a month once bond repayments, rates, and levies are included.
Renting a comparable property could cost closer to R18,000. For Millennial and Gen Z investors, that R14,000 difference can be used to build property portfolios in more affordable areas with stronger rental outcomes.
It is not without its challenges. The success of this approach depends on careful planning, realistic budgeting, and a clear understanding of the risks involved. Many homeowners assume that insurance will automatically cover missed rental payments, but this is not always the case. Loss of rental income is generally only covered when the property becomes uninhabitable due to a sudden or unexpected event, such as fire or flooding.
The rise of rentvesting is creating a new generation of first-time landlords, and many are learning the difference between traditional homeowners cover and broader protection often required for investment properties. As property ownership models evolve, education on risk management, tenant responsibilities, and long-term protection is crucial.
Protecting the modern property investor: As the property market evolves, rentvesting shows a broader shift in how Millennials and Gen Z view homeownership. While rentvesting offers flexibility and long-term investment potential, it also highlights the importance of understanding the responsibilities that come with owning rental properties.
From economic uncertainty to tenant-related risks, ensuring the right protection is in place remains a crucial part of the process. Rentvesting can help South Africans navigate an unpredictable economy while steadily building financial security for the future.
