Rising home prices and a shortage of supply have made the dream of homeownership more of a challenge for first home buyers. Many buyers are finding themselves priced out of their desired locations.
Housing Industry Association (HIA) managing director Jocelyn Martin recently told Sky News that first home buyers are being “counted out” of the market, adding, “It‘s just too expensive for them.”
Subsequently, as a first home buyer, you may be looking for alternative ways to enter the market. One possible solution is rentvesting.
What is rentvesting?
Rentvesting is a property investment strategy where an individual rents a home in their preferred location while buying an investment property in a more affordable one. This allows buyers to enter the property market without sacrificing their desired lifestyle or access to their work.
For example, let’s imagine you want to live in an inner-city apartment close to work and social activities, but property prices in that area are higher than you can afford. So, instead of taking on an unaffordable mortgage, you rather choose to rent in the inner city while buying a property in a more affordable suburb or regional area. This allows you to benefit from capital growth and rental income while continuing to live where you want.
How can rentvesting help first home buyers?
1. Faster entry into the market: Rentvesting helps first home buyers enter the property market sooner by purchasing in more affordable areas, easing the initial financial burden.
For example, CoreLogic’s Home Value Index for January 2025 shows the median dwelling value in Sydney was $1,193,228, compared to $809,870 in Perth – a difference of nearly $384,000.
If you want to live in Sydney but can’t afford to buy there, rentvesting allows you to purchase an investment property in a more affordable market like Perth while continuing to rent in Sydney. This way, you start building equity without overstretching your budget.
2. Building equity: As your investment property appreciates in value, you can build equity that can eventually be used to purchase a home in your preferred area or expand your investment portfolio.
3. Tax benefits: As an investor, you can often claim deductions for expenses related to your investment property, such as mortgage interest, property maintenance and depreciation.
4. Flexibility: Rather than committing to homeownership in a location that doesn’t suit your lifestyle or career, rentvesting allows you to stay mobile and rent where you want to live.
5. Diversification: Rentvesting allows you to choose high-growth areas for your investment property, rather than being limited to areas near your work or preferred location. This can help maximise long-term growth.
How does the rental market affect rentvesting?
An important component of a successful rentvesting strategy is the status of the rental market in your investment location. A strong market ensures your investment property generates rental income to cover a lot of your expenses, including mortgage repayments, property management fees and maintenance costs.
A strong market also increases the likelihood of capital growth, as demand for properties can put upward pressure on prices, increasing the value of your property.
Several factors can affect your rental property:
1. Low vacancy rates: Vacancy rates indicate the level of demand for rental properties. A low vacancy rate means there is high demand, which could mean your rental property is unlikely to remain vacant for long.
2. Rental rate growth: A combination of high demand and low housing supply has meant rental rates have steadily increased across much of Australia, although it varies by location. According to CoreLogic, rental rate growth was higher in the 12 months to December 2024 in the combined regions at 6.2% compared to the combined capitals at 4.3%.
3. Population growth and housing shortages: The country is experiencing ongoing population growth, driven largely by high net overseas migration. Between June 2023 and June 2024, the population grew by a rapid 2.1%, according to the Australian Bureau of Statistics (ABS).
At the same time, new housing delivery has been slow, with rising construction costs and low building approvals creating a backlog of new homes. In the year to December 2024, just over 170,000 dwellings were approved, according to the ABS. While this was 3.9% higher than 2023, it was below anything seen in the preceding decade.
The result is strong rental demand in many parts of the country, which is good news for investment property owners.
What to consider before choosing rentvesting?
While rentvesting can be a viable strategy for some first home buyers, there are considerations to keep in mind:
1. Financial commitment: Rentvesting requires financial dedication, because as well as paying rent, you’ll be responsible for your mortgage and other expenses related to your investment property.
2. Tax implications: While there can be tax benefits associated with property investing, they can make your taxes more complex. It’s generally recommended that you get professional advice for your tax returns.
3. Landlord responsibilities: Being a landlord comes with responsibilities, like appointing a property manager, finding and managing your tenants, maintaining the property and dealing with any issues that arise.
Ultimately, the decision to pursue rentvesting as a strategy for a first home buyer will depend on your financial situation and long-term goals.
Looking to find out more about rentvesting? Shore Financial can help. To discuss your scenario, call us on 1300 416 700, email us on info@shorefinancial.com.au or fill in this online form.
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