Rentvesting is a fantastic way for young Australians who want to join the property market but can’t afford to buy a home where they want to live. Here’s how it works:

What is Rentvesting?

Rentvesting involves renting a property in the suburb, town, or city you want to live while investing in property elsewhere. This strategy can be a more affordable way to get onto the first rung of the property ladder, as it allows you to purchase an investment property in a more affordable location while still living in a preferred area. 

How does it work?

Let’s say you want to live in Sydney, Melbourne or Brisbane but don’t quite have enough savings for a deposit. Instead, you could rent a property in Sydney, for example, while using your savings for a home loan deposit to purchase an investment property in a more affordable capital city, such as Darwin or Adelaide – or a regional growth hub, such as Wagga or Townsville. Better still, properties in these alternative locations might also generate more substantial rental yields. According to the latest date from CoreLogic, the median price for an apartment in Sydney is around $770,000, while the gross yield for apartments is 4.1%. In Darwin, the median apartment price is $375,000, while the yield is 7.3%. 

You can rent out the Darwin investment property to tenants, using the rental income to cover the mortgage repayments and other associated costs. Don’t forget, by buying an investment in a more affordable location your mortgage will be lower – also enabling the rents to cover more of the ownership costs. 

Over time, you can build up enough equity in the investment property to purchase another investment property or to sell it and use the proceeds to buy a home in a location of your choosing.

What are the advantages of rentvesting?

1. Flexibility: Rentvesting allows you to live wherever you want while building wealth through property investing. It can be a smart strategy for those who value the flexibility of renting, as it allows them to move home more quickly if their circumstances change – such as they get a new job.
2. Affordability: By purchasing an investment property in a more affordable location, you can get into the property market sooner than if you were trying to buy a home in a more expensive area.
3. Tax Benefits: There may be tax benefits associated with owning an investment property, such as the ability to claim deductions on expenses related to the property.

However, as you won’t be living in the property, you will generally miss out on first-home buyer grants and stamp duty breaks, so you’ll need to do your sums with the help of your accountant before jumping into a rentvesting strategy.  

Rentvesting can be a sensible way to get into the property market, particularly for those who want to live in a more expensive area but can’t afford to buy a property there. By carefully considering the costs and benefits of rentvesting and working with a trusted and experienced real estate agent such as Raine & Horne, you can determine if this strategy is right for you. 

Your Raine & Horne Property Manager can answer all your questions about finding the right property if you’re a first-time rentvestor.