Is the Australia Dream of owning a home now a nightmare?
How do millennials get a foot in the property market while living where they want?
Priced out of the same property market their parents invested in, millennials and first home buyers are turning to a strategy known as “Rentvesting” to own their slice of the Australian dream.
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 strategy has proven to offer a way forward for people who want to break into the property market and challenges the often traditional thinking around owning a home.
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.
Priced out of the market?
Over the last two decades, house prices have skyrocketed to as much as 16 times the median wage, compared to just four times the median wage in the 1980s.
For example, in Sydney, the median home cost just $64,800 in March 1980. Today that figure sails past $860,000 – far out of line with the normal inflation rate of wages.
Phil Anderson, the founder of Invest Approved, believes young people have to work smarter than ever.
The price gap – coupled with a pandemic-fuelled recession and ever-growing education costs – is forcing younger Australians to think outside the box or outside their postcode about getting their foot on the property ladder.
According to Phil, “rentvesting” is one strategy that first home buyers are using to grow their wealth.
“Rentvesting is about buying where you can afford and renting where you choose to live,”
“Life is short so, by ‘rentvesting’, you can still live the lifestyle you want while making contributions to your savings through an investment purchase elsewhere.”
The strategy sounds almost too good to be true: you rent where you want to live, and you buy in a high-growth area where you can afford and have strong demand by tenants and rent covers as much of the mortgage as possible.
It’s not without its risks either – investors need to do their homework and choose the right property based on the facts, not the emotions attached to a traditional “first home” purchase.
Millennials have it harder – statistically – it is harder than ever to purchase a property in Australia. E
A 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.
The big picture is moving away from the “pick and stick” property mindset of previous generations and being mindful of your finances and choosing the right property that will offer positive returns.
Many young Australians want to live in an area they can’t afford to buy.
The Australian dream is no longer about owning one property, in an area you might not even like, and living in it for the rest of your life. Choosing the right investment properties will lead to wealth creation that is stress-free and reduces the risk of financial stress.
Want to learn more about how to start investing in residential property? Click below to access the Invest Approved three-part video series and learn the fundamentals of building wealth through property.