Young people look for alternative ways on to the property ladder as interest rate rises cut into affordability
Rentvesting is expected to gain in popularity, with buyers looking for alternate ways into the market as interest rate hikes cut into affordability.
Rentvesting is when a borrower buys an investment property in an area they can afford while renting a primary residence in a less affordable area.
That may sound like a counterintuitive way to enter a market where national rent prices have increased 40% over the past three years, The Australian reported. However, rising interest rates have cut into affordability to the point that only one in five properties nationally are cheaper to buy than rent, according to data from PropTrack.
Cate Bakos, a Melbourne buyers’ agent, told The Australian that strong rental yields and tax concessions could make rentvesting a good long-term strategy for young people.
“The philosophy behind it is put your money where it’s going to work the hardest for you and live where you want to live,” Bakos said.
Affordability woes
A recent analysis by mortgage broker Lendi found that six in 10 Australians aged 18 to 34 said they could no longer afford to buy a property in the area where they grew up – and that doesn’t even account for last year’s eight consecutive interest rate hikes.
Andy Kerr, head of homeownership at National Australia Bank, told The Australian that this has led to young people finding more creative ways to get on the property ladder. In a recent survey, a third of respondents told the bank they would consider rentvesting.
Read more: Rentvesting: Is it a good idea?
“Buying a house or apartment where you can afford gets you on to the property ladder without breaking the budget, and then renting where you want to live means you can stay closer to work, friends and family,” Kerr said.
Renting cheaper than buying
Only 21% of homes nationally are cheaper to buy than rent, according to PropTrack data. In the more expensive markets of New South Wales and Victoria, fewer than 7% of homes are cheaper to buy.
According to Lendi chief executive David Hyman, fewer than 9% of first-home buyers are purchasing for investment.
“This allows rentvesters the option of a lower purchase price and loan amount than they would require for a property they might live in, increasing their chance of getting approved and into the market earlier,” Hyman told The Australian.
Think long-term
However, Bakos cautioned that rentvesting was not for everyone, and those who decided on the strategy needed to plan for the long term.
“If you’re investing and it precludes you from buying your own home at a timeframe that you’ll be wanting to do it, you might want to think twice, because buying and selling in a short space of time erodes any profits,” she told The Australian.
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