Over the past few years rentvesting has been a very prevalent topic of conversation when it comes to property. That’s because it has become an increasingly popular option for first home buyers feeling the effects of deteriorating housing affordability, especially in Sydney and Melbourne.

Rather than buying their own home to live in, many first home buyers are instead looking to purchase an investment property first – in a more affordable area – as a way to get a foothold on the property ladder. They can then rent a home to live in, in an area where they want to live but probably couldn’t afford to buy in.

Why rentvesting is on the rise

The figures relating to rentvesting all point towards an increase in the number of people going down this path. According to a joint Herron Todd White and Westpac report from earlier this year around 3% of first homebuyers nationally are now rentvestors. Another 13% indicated they planned to become rentvestors, while avoiding rent and living in the family home.

In NSW this figure rose to 24% and in Victoria, it was 20%. The obvious reason why so many first home buyers are turning to rentvesting is affordability, and this is why more rentvestors are coming from Sydney and Melbourne, where property prices have skyrocketed.

According to the latest data from CoreLogic, the median dwelling price in Sydney is over $900,000, and in Melbourne, it’s more than $700,000.
If you want to be in the areas closest to the city you’ll be paying a premium much higher than this in many cases; one that is out of reach for many, so that means you’ll be relegated to the far-flung suburbs, facing a long daily commute.
Since this often isn’t an attractive proposition, buyers are deciding to invest instead, but not in the major capitals, as the numbers just don’t add up.

Growth prospects in these areas are low due to the market already having peaked, or being close to peaking, and yields being low. CoreLogic data shows gross rental yields for Sydney houses and units are 2.8% and 3.6% respectively, while in Melbourne they’re 2.6% and 3.9%. In addition to affordability, another advantage of rentvesting is that it gives first homebuyers especially more freedom to travel for extended periods or relocate if a great work opportunity arises.

Rather than having the difficulty of figuring out what to do with your home and how to manage payments while you’re gone, if you have an investment your property will keep ticking away, with your tenant paying rent and hence a good proportion of the mortgage, so the noose around your neck is much looser.

Being a rentvestor can also be a smarter way to grow your wealth as your costs are tax deductible, so you may end up only a little out of pocket, or you could break even or even make a small profit.
You can also buy in an area with better long-term growth prospects, further improving your capacity to grow your wealth.

Where should rentvestors buy?

Many investors feel comfortable buying in their home city, region or state, as this is what they’re familiar with, but it’s not always where the best long-term growth prospects are. The property market moves in cycles and different areas will be growing – or at different stages of the property cycle – at different times.

Investors should always target up and coming areas when buying to take advantage of future capital growth, which will enable you to not only grow your equity but to invest again, further boosting your wealth. We believe some of the best locations for rentvestors are not in the capital cities, but in regional areas just outside capitals or even further afield.

In particular, we’ve identified several areas in New South Wales and Queensland that are growing due to their relative affordability and the lifestyle on offer, with more people moving to these regions both to buy and rent.

They also have infrastructure projects further driving demand, including airports, which, along with technological advances, is improving access and enabling people to move there and work remotely, commuting via plane or road when they need to be in the office.

In Queensland the regions we buy in include Ipswich, Moreton Bay and the Sunshine Coast, and in NSW these areas include Newcastle and the Central Coast. The locations we look to buy in generally have properties priced between $250,000 and $600,000, with yields ranging from 4.5% to 6%.

Get the property right too

While selecting the right location is important, it’s also crucial to buy the right property within that area, and that’s where a buyers’ agent comes in.

We can help you source the right property to start or expand your portfolio that will grow in time and provide a solid return.

If you want help with finding the right property in the right location, contact us for an obligation-free 30-minute strategy session.

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