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Why more Australians are rentvesting

Why more Australians are rentvesting

‘Rentvesting’ is an option being taken by some younger Australians who want to enter the property market but don’t want to live in the outer suburbs.

Many first home buyers in Australia’s major capitals can only afford to buy far from the city centre. But that can pose a problem for those who work in the CBD or grew up in the inner suburbs or are currently living in a trendy inner-city location.

One compromise option is to ‘rentvest’ – to rent a property where you want to live and buy an investment property where you can afford.

Sure, you’re still paying ‘dead money’ in the form of rent, but you’re in the market and you’re living where you want.

Rentvesting is meant to be a temporary option. The idea is that in, say, five or 10 years, the buyer will be earning a higher salary, which will allow them to buy an owner-occupier property in a suburb where they actually do want to live.

Hopefully, in those five or 10 years, their investment property would have significantly increased in value and a big chunk of the mortgage would have been paid down. That would allow the buyer to draw out some equity to help fund their second property purchase. Another fundraising option would be to sell their home.

Entry-level homes getting harder to find

The reason more people are rentvesting is because it’s getting harder to find affordable properties in Sydney, Melbourne, Brisbane, Perth and Adelaide, which contain 63 per cent of Australia’s population.

Since 2012, there has been a significant reduction in the share of houses and units available for less than $400,000, according to CoreLogic.

Houses for under $400,000

CityMarch 2012March 2017

Units for under $400,000

CityMarch 2012March 2017

The rentvesting trend is likely to increase

The average loan size for first home buyers is $308,900, according to the latest data from the Australian Bureau of Statistics. That would equate to a purchase price of $386,125, assuming the buyer was putting down a 20 per cent deposit.

If someone wanted to buy a house in Australia’s five biggest capitals for $386,125, they would have to look far into the outer suburbs. It would be easier to buy a unit for that price, but it probably wouldn’t be in the more desirable inner suburbs.

Hence rentvesting.

Unless federal and state governments can find a way to make life easier for first home buyers, the rentvesting trend is likely to increase.

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