Rentvesting: new trend helping young buyers enter market

The dream of owning a home in Newcastle or Lake Macquarie may feel increasingly out of reach for some young people, but there may be a solution – rentvesting. 

With increasing prices and interest rates increasing 143 times in little more than 15 months, rentvesting is fast gaining attention. 

Young people searching for new ways to get a foot in the property market may find this a viable method, says Niva Property’s Nigel Watts. 

“Simply put, rentvesting is all about renting where you want to live and investing in a property in a different and more affordable location,” he told the Newcastle Weekly. 

“Firstly, you get your foot in the property market as early as possible, and with a well-selected property you can start to build equity and wealth from a young age.   

“You can then use this equity in addition to your normal cash savings to help fund a future home when you are ready to settle down. 

“This also teaches people about investing and about finances – great life skills to have, and thirdly it means when you are young you can rent and not worry about doing all the maintenance – live your life before settling down in a family home.”   

Nigel says the typical price for a house in Newcastle has risen 38% in the past five years to $966,000. 

In Lake Macquarie, the rise is 43% to $935,000. 

With a 20% deposit often required, homebuyers typically need $200,000 saved in the current real estate climate. 

At a 6% interest rate, he adds, a home loan would attract a monthly repayment of $4,593 – 63% of the median household income in the Lake Macquarie and Newcastle region.   

 WHAT MAKES A GOOD PROPERTY FOR A RENTVESTER?  

“Buying in a more affordable location where prices are yet to increase, buying in a location with strong macros indicators showing positive capital growth prospects, and ensuring the suburb you buy in has low rental vacancy and good overall yields,” Nigel says will make for a good rentvesting property. 

“Most importantly you must plan to keep the property for the long haul,” he adds. 

“If you sell within the first five years you may not reap the rewards of your hard work.”  

Before you invest, he says, you must work out cash flow projections to ensure affordability. 

“An established property that can be improved is a good strategy as this means you know what you are getting and generally there is a lot less risk than off the plan. 

“This is especially so now with many builders going into liquidation and costs continuing to rise.   

“With an older established property, you also have an option to manufacture additional equity in years to come through carefully planned and managed renovations.       

“Don’t get something too run down though that needs a lot of work and can cost a lot in maintenance and repairs,” he warns.   

“Whilst houses tend to out-perform units based on historical data, if a unit is all you can afford, try to buy one in a small complex which generally has less strata issues, less costs and less hassles.” 

WHERE TO RENTVEST  

“That’s the million-dollar question,” says Nigel.   

“If you are not comfortable buying away from where you live, your options are of course reduced, however, it may still be possible for you to buy local and achieve your goals. This all comes down to where you live, affordability options and of course your borrowing capacity.   

“A key thing is to set realistic expectations and you may need to invest in an area you’d never thought of before.”  

Depending on your individual situation, Nigel also says young people could consider living in their rental property or rentvesting with a sibling or friend.