Rentvesting
While the term Rentvesting might not be new to those in the property market, it is becoming more and more the option that many home buyers are looking to explore. Buyers locked out of expensive capital cities are now looking to rent in a location in the city that compliments their lifestyle and investing in more affordable regional property markets rather than leaving their cash in the bank. Stunning major-city price growth has caught out many buyers, quickly leaving them behind since the market began to bounce back last year. The recovery has continued this year with CoreLogic data showing that property values in some city suburbs jumping over 30% from the same time last year.
Despite record low interest rates, many first home buyers have been priced out of their dream suburbs despite having good deposits and borrowing power, all the while watching their funds gathering dust in the bank. It has prompted many first-home buyers to reconsider Rentvesting, putting their money into an investment property while they continue to rent in their desired location. Unfortunately, given the market, buyers cannot get into the suburb or pocket where they want to live so are splitting their healthy deposits and investing into regional markets. The plan is to build property portfolios in locations with strong rental yields and capital growth potential and eventually buy back into the big capital cities in the years to come.
A recent survey of 18-25 year olds found that a third wanted the ability to work and rent in the city while still owning an investment property in a holiday town. The survey also highlighted 40 per cent wanted to own investment property to safeguard their future, while 37 per cent were motivated by low interest rates and a similar number wanted extra income.
Brisbane first-home buyers are also now turning to Rentvesting with the housing market boom taking off since restrictions eased, both in the capital and surrounding regional markets. Through the COVID pandemic, regional markets outperformed metro cities and thanks to a low-interest-rate environment, many buyers have been able to yield a strong rental return that covers the mortgage repayments and, in some cases, even deliver some positive income from their investment property. However, buyers are cautioned not to expect short-term gains in regional markets, despite recent performance, because Rentvesting was better suited to buying and holding for a longer period.
And the same is true for Interstate first home buyers wanting to invest in Brisbane. One buyer was hoping to purchase an entry-level property in Brisbane for around $600,000 (which has predicted property growth of 30 per cent in the next five years). This means an estimated $150,000 growth of equity can be created by Rentvesting which is more than the client can save themselves. With Rentvesting, their money is working harder by putting it in property while they continue to save.
One of Australia’s larger banks, ANZ, has recently revised its forecast, expecting Brisbane house prices to rise by 16 per cent by year’s end, but all indications are predicting better than expected forecasts, if the last couple of months are anything to go by. The future is definitely looking bright for potential investors who are looking to buy an asset that appreciates in value over time, so that one day, they can use the profits to buy their own home.
