Why every Australian should consider rentvesting

Buying an investment property in an affordable suburb while renting and living in a more desirable area can be the stepping stone towards a property portfolio and financial security.

House with for rent sign out front
(Image source: Shutterstock.com)

There is no secret buying a home is tougher than ever, especially amid rising interest rates, tough lending conditions, tight household budgets and high prices.

The mission may however be possible if you adopt a rentvesting strategy.

Rentvesting means buying and renting out an investment property in an affordable area, while continuing to pay rent and live in your desired location.

Canstar modelling suggests a single person would need to earn more than $250,000 to secure and service a loan for a typical home in Sydney. A Sydney couple can secure and service a loan with a combined income of $241,800.

Prices are down from their pandemic peaks but with interest rates still climbing, buying even at the median Sydney price, as well as elsewhere, is near impossible for many buyers.

When the rates were at record lows, many homebuyers stretched themselves to buy at the median price, but these households are already feeling the pinch and unfortunately will not have much luck if they need to re-enter the market at a similar price point.

If you don’t have the ‘Bank of Mum and Dad’ to help you get onto the property ladder than rentvesting is your best bet.

Rentvesting is the perfect strategy for first home buyers and families looking to get into the market without the budget, or income, to buy their dream home.

Capital growth the focus

As households find themselves priced out of the Sydney and Melbourne market, they can invest in more affordable capitals now and rent where they like to live while their investment works for them to build deposit power.

Markets like Adelaide where the median house price is $655,000 and Perth with $580,000 offer great opportunities for those on an average income to get into the market without enduring excessive mortgage stress.

Growth is key for successful rentvesting.

Select the right market, as you want to make sure it is positioned for growth in the first three to five years so you can build deposit power.

A growth market will be driven by employment, infrastructure and population growth, like Adelaide, which has a multi-billion-dollar infrastructure pipeline, job creation, relative affordability and the return of international travellers and migration.

The Adelaide market has sustainability and is still seeing buoyancy that makes it an attractive market for clever rentvesters. It certainly still has growth to unfold.

Canstar’s research suggests for a single person to purchase a home in Adelaide and avoid mortgage stress (where more than 30 per cent of the income goes to servicing the loan), they would need to earn $136,045 before tax. Similarly, in Perth, a single person would need to earn $114,998 before tax. 

Note: Potential rentvesters need to still consider the responsibilities of servicing a debt and understand a deposit is still required when purchasing an investment property.

Article Q&A

What is rentvesting?

Rentvesting is the practice of living in a rental property while simultaneously renting out an investment property that you own. Typically, rentvestors will live in a desirable suburb beyond their ownership budget and buy a property and rent it out in a more affordable suburb.

Continue Reading Investment ArticlesView all investment articles