Rentvesting in Australia has been gaining popularity among Australian homeowners and property investors in recent years. With rising property prices across the country, rentvesting offers a flexible and affordable way to get a foot on the property ladder.

But what exactly is rentvesting, and how does it work? This comprehensive guide explains everything you need to know about the rentvesting trend in Australia.

 

What is Rentvesting?

Rentvesting involves purchasing an investment property to rent out while continuing to live separately in a rented property.

Essentially, it allows you to experience the benefits of owning real estate as an investor, even if you can’t yet afford to buy your dream home.

The concept of rentvesting enables first-home buyers or young people to get onto the property ladder sooner, by buying a more affordable investment property first.

Rentvestors often target cheaper properties in outer suburbs or regional areas that have good rental demand. The rent helps cover the mortgage, while they save and wait for their ideal primary residence to become affordable down the track.

 

Why is Rentvesting in Australia Growing in Popularity?

There are several reasons more Australians are embracing the rentvesting approach:

  • Affordability – With rising property prices in major cities, rentvesting allows buyers to purchase a property they can afford now while saving and waiting for their preferred suburb or neighbourhood to become attainable. Buying an investment gets them on the ladder sooner.
  • Flexibility – As renters themselves, rentvestors aren’t locked into long-term occupancy and can easily move locations if jobs, relationships or life circumstances change.
  • Tax benefits – One of the key incentives is the tax deductions investors can claim on their rental property, making ownership more affordable.
  • Building equity – Rentvesting in Australia enables buyers to build equity by paying down their mortgage. And if their investment property appreciates, this builds their net worth through equity growth.
  • Lifestyle factors – Some rentvestors prefer renting for lifestyle reasons, finding it easier than home ownership. Rentvesting means they don’t miss out on the financial benefits of property investment.
  • Passive income – The rental income generated by an investment property provides a form of passive income for rentvestors. This income can supplement wages or be used to save faster for a home deposit.

 

Where are the Best Places for Rentvesting in Australia?

Rentvesting can work anywhere in Australia. However, some locations tend to offer higher rental yields and better prospects for capital growth.

Areas within commutable distance of major cities are popular, such as Wollongong for Sydney and Geelong for Melbourne.

Outer suburbs of cities that are gentrifying are also attractive, like Melbourne’s northern and western suburbs which are undergoing revitalization.

Some rentvestors target homes in or near university hubs due to strong demand for student accommodation, for example in Newcastle, Wollongong and Canberra.

Regional centres close to mining and industrial regions are worthwhile too, given their transient workforces and consistent rental demand. Towns like Port Hedland, Karratha, Gladstone and Mackay can fit the bill.

However, one of the keys is ensuring the area you buy in has strong long-term demand from tenants, to avoid prolonged vacancies.

 

What Are the Best Strategies for Rentvesting Successfully?

While rentvesting in Australia has many benefits, you need the right investment strategy and property selection to make it work. Here are some top tips:

  • Research areas with growing populations and economies poised for rental demand now and in future. Target affordable properties in these locations.
  • Look for bargain homes priced well below median market value, such as distressed sales or mortgaged-forced sales, to maximise your buying power.
  • Consider buying at auction or investigating off-market deals to access value. Leverage the services of an experienced buyer’s agent.
  • Search for properties with renovation potential to add capital value through cosmetic improvements that boost rentability.
  • For hands-off investing, focus on identifying tidy, modernized properties requiring little or no immediate maintenance.
  • If feasible, apply to purchase off-the-plan for brand new apartments poised for capital growth and appealing to tenants.
  • For higher rental yields, look closely at dual-key properties or townhouses with studio-style layouts suited to students.

 

Top Tips for Rentvesting Successfully

If you’re planning to become a rentvestor, keep these handy tips in mind:

  • Get pre-approved for finance so you can act quickly when you find a suitable property and negotiate from a position of strength.
  • Be conservative when determining your maximum borrowing capacity. Don’t over-extend your finances.
  • Thoroughly research the area before purchasing and inspecting the property to ensure it will appeal to tenants, not just investors.
  • Crunch the numbers to estimate all costs – mortgage repayments, insurance, council rates, maintenance and property management fees.
  • Be strict about your budget and buy below your upper limit to allow for periods of vacancy between tenancies.
  • Seek tax and legal advice to ensure you structure the purchase and asset ownership correctly.
  • If using a property manager, do due diligence to find an experienced and reputable operator.

 

By following these tips, almost anyone can make rentvesting in Australia work and enjoy the perks of property ownership. With the right investment strategy, it can pave the way to long-term wealth creation.