It’s no secret we’re navigating a cost-of-living crisis, witnessing house prices reaching unprecedented heights, making the prospect of property ownership seem like a distant dream for many.
According to recent reporting, only 16% of nationwide suburbs are affordable for households purchasing an average-priced house with a 20% deposit, a sharp decline from the 61% figure five years ago. During the peak of the 2021 pandemic, buyers could afford an average-priced home in 46% of suburbs, but this has since decreased to 26% in 2022 due to a rise in average mortgage rates to 5.49%. Over the past five years, monthly mortgage payments for a median-priced house have risen from $2030 in 2019 to $4195, according to RateCity’s calculations.
With that, you’ll likely have clients approaching you with concerns like, “I can’t afford a home where I want to live”. Tell them to invest in a rental instead.
What is Rentvesting
Rentvesting has been gaining momentum in recent years as an alternative strategy for those looking to build wealth while navigating the challenges of homeownership. In short, it’s a smart and innovative approach to real estate investment.
The concept involves renting a property in a location where you want to live while simultaneously owning and investing in another property elsewhere. This strategy allows individuals to enter the property market without the burden of purchasing a home in their preferred location.
Rentvestors can live where they want without compromising on lifestyle choices, while also making a strategic investment in a property market that offers better returns. This is particularly appealing to those who are not ready to commit to a specific location or want to take advantage of opportunities in different real estate markets.
Rentvesting vs Buying
Now, let’s compare rentvesting with traditional home buying. When you buy a home, you commit to a long-term investment in a single location. This can be a great option for stability and building equity over time, but it may limit your ability to explore opportunities in different markets or adapt to changing circumstances.
Rentvesting, on the other hand, provides a unique balance between stability and flexibility. You get to enjoy the benefits of living in your desired location while simultaneously investing in property markets that align with your financial goals. Additionally, the upfront costs of rentvesting are often lower than buying, making it a more accessible option for many aspiring investors.
For example, let’s say you’d love to live on the Gold Coast. The median house price on the Gold Coast is predicted to sit at $915,000 by June 2024. This is close to a $91,500 deposit plus cost. Whereas a new house and land package in Evanston Gardens, South Australia sits in the $500,000’s only requiring a deposit of $50,000. With strong capital growth and rental yield, this can help you save for that dream property while you get the perks of renting and living on the Gold Coast. Or, if you change your mind, you have the flexibility to try somewhere else or purchase a new investment property.
Rentvesting Strategy
To make the most out of the journey, your clients should have a well-thought-out rentvesting strategy.
Here are some key considerations:
- Research: Conduct thorough research on both the rental market in the desired location and potential investment markets. Look for areas with strong growth potential and rental demand.
- Financial Planning: Evaluate their financial situation and set a budget for both the rental property and investment property. A good financial advisor will know to make sure that the strategy aligns with long-term financial goals.
- Property Selection: Choose the rental property based on lifestyle factors, while selecting an investment property based on its potential for growth and rental yield. Diversifying the portfolio can provide a hedge against market fluctuations.
- Tax Considerations: Understand the tax implications of rentvesting, including potential deductions for investment property expenses. Consult with a tax professional to optimise financial positions.
So, is rentvesting a good idea?
For many, the answer is a resounding yes. It provides a unique opportunity to achieve homeownership goals while maintaining the flexibility to adapt to changing circumstances. By carefully researching, planning, and implementing a well-rounded strategy, individuals can navigate the real estate market with confidence and build a diversified property portfolio.
Ultimately, whether your clients choose to pursue rentvesting or traditional home buying depends on their personal circumstances and financial goals. The key is to make informed decisions that align with their lifestyle and aspirations.
Discover new opportunities with rentvesting as a smart alternative for building wealth while enjoying the flexibility to adapt to changing circumstances.
ALC’s affordable home and land packages are strategically positioned in locations with strong rental yields. Explore our options today by inquiring about our offerings.
