What is RENTVESTING? A new generation of buyers is using an alternative approach to climb the property ladder; it’s called rentvesting.
The concept is gaining momentum with savvy millennials keen to break into the property market without turning their backs completely on the inner suburbs lifestyle they enjoy.
A rentvestor continues to rent in an area they want to live in but can’t afford to buy, instead purchasing an investment property in a more affordable area, often further out of the city.
Realestate.com.au chief economist Nerida Conisbee says the concept has been around for years but is on the rise due to “housing affordability issues”.
“The biggest challenge for young people is getting a deposit together – this is far easier at more affordable price points,” she says.
“By buying in cheaper suburbs, they need less deposit and also a smaller mortgage.
“Young people are also not at their peak earning potential – this makes paying off a big mortgage quite hard.”
Ms Conisbee says more affordable areas are popular with investors, including rentvestors, with most having budgets of less than $700,000.
“We’ve seen high investment in regional areas like Geelong, Ballarat and Bendigo and in high volume apartment locations,” she says.
As well as enjoying the lifestyle benefits of inner suburbs living, rentvestors may be able to reduce their tax by negatively gearing their investment property if their rental income is less than their interest repayments and expenses on things like repairs to the property and body corporate fees.
But rentvesting isn’t without its potential pitfalls.
Renting isn’t as secure as owning a home. Renters could find themselves looking for a new place to live every 12 months if a rent increase blows their budget or their landlord decides to sell.
Owning an investment property can also come with challenges, such as finding and keeping a good tenant. Mortgage repayments still need to be met even when there’s no tenant to pay the rent.
Landlords are also responsible for repairs and upgrades that are required and this can be costly and come at unexpected times.
Ms Conisbee says research is the most important thing when looking to invest.
“Like all investing, you need to be careful with what and especially where you buy,” she says.
“You generally have a good understanding of the market in the area you live in, but buying in another state or city can be hard to get a good understanding of what you’re up against.”
She says the goal should be to buy a property in a location that will grow in value sufficiently to help fund the next property purchase.