Rentvesting gathers pace
Renters are becoming property investors at a rising rate, as lifestyle choices and the desire to get ahead financially combine to create a growing class of real estate owners.
It’s called “rentvesting” – the idea of renting in an area where you want to live and investing in an area you can afford – and property experts expect it to continue growing strongly as surging home prices impact housing markets.
Rentvestors are battling first-home buyers for lowerpriced property, many with the help of the Bank of Mum and Dad, while some are living rent-free with parents as their tenant helps pay the mortgage.
Others buy properties in regional areas, where they have a previous connection and prices are cheaper than capital cities.
Among them is Emily Simpson, a senior property manager at Little Real Estate in Melbourne, who bought an investment property at Horsham in regional Victoria in 2019.
“I grew up in Horsham and my parents still live there and mentioned that house prices in Horsham were good at the time,” she said. “We found a property at a reasonable price and jumped at the chance.
“I know a lot of people that rent and also have investment properties. All have different circumstances, such as the property being in a different state, country, moving further in for work or moving in with a partner and the property they own is too small for two people.”
A report released late last year by Australian Property Investor Magazine found in just two years the proportion of people identifying as a rentvestor had climbed from 5 per cent to 8.3 per cent.
“Today, many investors are building their property portfolios through this strategy – renting in their desired suburb while buying more affordable homes on suburban outskirts or in regional areas, or opting to buy and rent out cheaper apartments,” it says.
“At a time when inner-city housing prices continue to rise, it’s a lifestyle and investment decision that is likely to become more popular.”
Binnari Property managing director David Hancock said his firm had seen an increase in rentvestors, particularly in the inner suburbs of major cities.
“The rise has aligned with the rise in property prices in recent years as the younger population are forced to look to alternative strategies,” he said.
“With record overseas migration and new property supply at critically low levels, it is hard to see the property markets slowing down. As affordability continues to become strained, more people will be forced into a rentvesting strategy.”
New lending figures from the Australian Bureau of Statistics show investor lending rose 21.5 per cent in the year to March 1, accounting for more than half of total new home loan commitments.
“There has definitely been a rise in young professionals living at home longer to save a deposit and then benefiting from the rental income and the tax breaks that can apply to an investment property while continuing to live at home,” Mr Hancock said.
He said rentvestors should seek properties in locations with the potential to keep up with or outperform the area they lived in, to “eventually close the gap on buying your ideal property”.
“Do your research and identify the market cycles that are most favourable from a growth perspective and invest those markets, which might mean buying interstate.”
Ms Simpson said investors should be wary of unexpected expenses, such as body corporate fees, and seek properties unlikely to have large outgoings.