Home owners should reserve any judgement around the likely wealth of tenants living next door. They could, in fact, be ‘undercover millionaires’.
Owning a family home was once regarded as the cornerstone of the great Australian dream. Now due to affordability issues, particularly in Sydney and Melbourne, it seems this dream is taking a different shape. Reports are now highlighting that more than a third of 1st home buyers have opted to invest in the real estate market rather than buy a home. This investment strategy has become known as ‘Rentvesting’.
What is ‘Rentvesting’?
‘Rentvesting’ is a rapidly growing trend, which sees buyers rent a property where they want to live and buy an investment property in a suburb which they can afford. This has proven to offer a way forward for people who want to break into the property market and challenges the often traditional thinking around home ownership.
The strategy of ‘rentvesting’ has become increasingly popular as it allows investors to get the best of both worlds. They can afford to rent where they want to live but still enter the property market by buying elsewhere and renting that property out.
Investors are seeing this approach as an opportunity to maintain a lifestyle of choice but not neglect the importance of establishing a long term wealth-creation strategy.
Benefits of ‘Rentvesting’
‘Rentvesting’ is often the most affordable way for investors to get their foot on the property ladder. Helping kickstart their ability to build wealth without sacrificing their lifestyle today.
One of the advantages of ‘rentvesting’ is that it does not need to be a long-term decision. It can be a stepping-stone to provide buyers with extra time to decide exactly where they will settle down for the longer term. Allowing Rentvestors to build their portfolio by making smart investment decisions rather than having their decision clouded by emotions, as is often the case when purchasing a home to live in.
Investors who follow this method are often surprised how easy it is to service the holding costs associated with an investment property when compared to a family home. Thanks to the combination of government incentives, and a choice of targeting the most ideal investment markets nationally, an investment property can often have zero impact on their ‘after-tax’ income.
The rise in popularity of ‘Rentvesting’
Westpac recently surveyed 2000 Australian men and women aged 20-70 years and found that Sydneysiders were most likely to consider the strategy as a backdoor into the property market.
The Westpac survey found that the typical ‘rentvestor’ were men aged 20 to 34 born between 1983 and 1997 and were metro-based. Seventy-seven per cent said they were looking to buy a property to live in as their next purchase while adopting the ‘rentvesting’ approach to get into the property market.
Westpac head of home ownership, Lauren Fine, commented that ‘rentvesting’ was gaining popularity as an alternative for the young to get into the property market. Other industry commentators have weighed into this conversation, believing this method will continue to skyrocket in popularity over the coming years.