Rentvesting Versus the Great Aussie Dream

Some first-home buyers are turning their back on the Great Australian Dream of having their own home to live in and are instead increasingly opting for an investment property first, new data shows.

Described as ‘rentvestors’, a third of investors this year are first-time buyers who had not yet bought their own home, a Mortgage Choice survey found.

This compares to when the property boom was heating up in Sydney and Melbourne nearly three years ago when about 20 per cent of investors fell into this category.

Recently, my client Scott Holmes who is a 32 year old business analyst decided to buy his first property. His salary was $83,000.

But instead of buying a home in Melbourne’s bayside suburb of Elwood, where he rents in a share house for $190 a week and the median price is $910,000, he bought an investment property in Melbourne’s Carnegie for $350,000.

The property rents for $360 a week, which pays for the “majority of the outgoings”, he said.

“It’s been a great way to allocate extra funds that I would have been using to pay for an owner-occupied property into an asset that is likely to continue to grow,” Mr Holmes said.

“Renting suits my lifestyle, gives me the flexibility to travel and have the opportunity to build and create wealth, while optimising my tax and accounting situation,” he said.

Property buyers should consider it as an option due to “the difference between a mortgage repayment and rent” and as it opens up interstate markets and locations that might not be where you want to live.

Further evidence suggests that many first home buyers have come to the realisation that they may not be able to afford to buy their first home in their dream location, and instead of waiting to buy something undesirable, investing offered a better financial opportunity.

Google Trends shows the term ‘rentvesting’ began to get traction in May 2015. Since then, online searches with this term more than tripled.

But while young Australians seem to be giving up on buying a home and instead purchasing an investment, they’re often intending to turn the investment into their home at a later date.

Scott’s accountant also pointed out the tax benefits, including depreciation and negative gearing which can help facilitate young investors like himself paying down the loan for the first two or three years.

By using the rent coming in, plus any regular savings, the loan could be paid down much quicker than if a first-home buyer moved in straight away.

This could fast track the investor into becoming an upgrader more quickly than a first-home buyer would typically be able to afford to.

Property purchasers need to be mindful that this strategy could “attract substantial capital gains tax” when a property was renovated or in an area with substantial price growth, even if the property became a main residence. 

Belinda (ex- Macquarie Bank) is an accredited Finance Broker and holds a bachelor of Communications (minor in Business). She has accumulated over 10 years of banking and lending experience across credit, sales and senior manager roles. Belinda combines her passions of finance, business, property and people to provide an enriched client experience and takes the time to investigate and understand what is required for each of her clients.
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