The Rise of the New Aussie Dream: Rentvesting

What do you see when we write: the great Australian property dream? Do you see the so-called quarter acre block with a patio, BBQ and pool?

For current first home buyers, they see something much different. Gone are the days where first home buyers could up and decide to get their foot on the property ladder in the area they wanted. Sure, it’s still possible – but much later in life, and with quite a bit of capital.

With Australia holding the position of the third highest house price-to-income ratio in the world, combined with the monthly jump in housing prices across all states and territories, first home buyers are forced to challenge the Aussie property tradition. 

These factors have led to the rise of rentvesting: instead of buying the property they want, young buyers rent a house and invest their remaining money elsewhere. Young people are choosing to rent share houses to minimise rental costs and invest their money in outer metropolitan suburbs where property is more affordable.  First home buyers in Sydney and Melbourne have been using this strategy for years due to the average house price hitting the one million mark, but now Perth buyers are turning to similar routes to break into the property market sooner.

We’ve all probably heard of or even hold the belief that ‘rent money is dead money.’ However, rentvesting has the potential to be part of a successful overall financial plan.

A Reserve Bank of Australia discussion paper revealed that there has only been a slight difference in the long-term economic fortunes of buyers and renters since 1955. The paper found that despite rising rents, property booms and bubbles, renters and buyers ended up in similar financial positions. If you do decide to rentvest, there is a chance you might come out in a better financial position than if you buy your own home straight away.

But before jumping on the bandwagon, it’s helpful to question whether it suits your financial needs. The pros of rentvesting include; entering the property market sooner, living the lifestyle you want, building wealth, saving for a dream home, movement flexibility, choice in investment location and tax benefits. The cons include; you won’t own your own home, the ‘dead money’ idea may deter you and you can’t modify your rental.

Most importantly, you need to decide whether you can afford either buying your own home straight up or rentvesting. There is no standard answer to whether you should or shouldn’t go for either – your personal circumstances will help make the decision for you. Speaking to a trusted broker can also give you a clearer picture as to the financial direction you can head in.

At Select, we provide free, no-obligation and quality advice to help you achieve your financial goals. If you are looking to get your foot on the property ladder, our brokers can provide you with a variety of options to suit your personal circumstances. Give us a call on (08) 9417 3399 to speak with one of our friendly brokers.