Build a portfolio by rentvesting

Bryan is a buyer’s agent and head of Australia-wide property acquisitions at Propertyology.

Heidi and Martin need to be congratulated on their impending wedding – and their dedication to investing at such a young age. They’re in a great position to secure their financial future and ensure that, unlike 82% of Australians currently aged 65 or more, they avoid falling victim to the aged pension trap.

With an upcoming wedding and uncertainty about where (and when) they would like to settle down, it wouldn’t be unusual if their needs and wishes change over the next few years.

Given the exposure their super already provides to the sharemarket, I suggest they retain flexibility for career and lifestyle by rentvesting: renting where they are happy while investing in property markets that appear to have solid fundamentals and growth potential. Depending on how determined they are and on their long-term objectives, it’s possible Heidi and Martin could be in a position to purchase two investment properties in the short term using this strategy.

Heidi and Martin can build a diversified portfolio, taking advantage of locations with better potential than the Sunshine Coast. Purchasing an “investment” property to potentially one day retire into may sound nice but trying to decide now where and what they may want to live in 40 years down the track is a waste of time.

I recommend they buy one property now and a second within six months. To maximise opportunities and minimise risk, they would be in different cities (possibly different states). The combined asset value would be around $600,000 and I’d estimate combined annual holding costs could be as little as $5000.

Investing across multiple locations and in various states is something very few people do; it’s also a common reason for people not realising their full potential. Individual suburbs (which are effectively just dotted lines on a map) do not go up and down in value. Furthermore, not every street in a specific suburb or region may be acceptable for investing purposes. History shows that regions with strong fundamentals such as affordability, economic development, controlled supply and positive sentiment perform better from an investment perspective over a longer period. It requires an investor mindset, treating property as a financial instrument, not a home.

Following this process is how Propertyology uncovered the now strongly performing Hobart market for our clients three years ago.

With all of this in mind, while very select pockets of Brisbane and the Sunshine Coast might not be bad investment decisions today, there are other markets throughout Australia that are more affordable and have stronger fundamentals that I would consider for Heidi and Martin.

Based on the price range of properties I’ve purchased for clients, in the most affordable of these locations we would look to spend between $230,000 and $280,000. Rental yields in these locations for a three- or four-bedroom house are currently around 6%.