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Most people have heard of rentvesting: it’s where you rent where you want to live, but buy a property where you can afford.

It means you can keep renting in the area where you have built your life, but to get your foot on the property ladder, you buy a property in a different suburb, city or even state.

You might be renting in an area where the rent is manageable, but the cost of buying is well out of your reach. This is the kind of scenario that rentvesting is perfect for.

Is rentvesting really the answer to affordability issues?

Here’s the reality: as property prices continue to climb upwards, many potential homebuyers have found themselves priced out of parts of major cities such as Sydney and Melbourne.

Property prices across the country are booming right now, so if you can’t afford to buy now in the area you’d prefer, it’s likely to be even less affordable a year or two from now.

That’s why many people are now exploring alternatives, to be able to get a foot in the door of the property market!

Is reinvesting a perfect solution? Not always. There are some downsides, which I’ll get to in a moment. But first, let’s discuss some of the benefits of rentvesting.

How does rentvesting actually work?

The best way to explain it is through a hypothetical example.

A young couple in their early 30s began rentvesting. They want to keep living in a capital city for their careers, but buying a home in their local area was well out of their price range – and they couldn’t see a time when it would become possible.

Instead of buying in Sydney, they chose to rent a place in their ideal suburb, while saving up for a property located in the Gold Coast – an area they chose for its relative affordability, rental demand and growth potential.

They bought an investment property for $400,000. A few years later, they used the growth in that investment to purchase a second investment property for $500,000. Five years later, they refinanced both investment property loans, and withdrew enough money to use as a deposit on a small home in Sydney.

Thanks to rentvesting, they were able to eventually buy their own home in Sydney, and they also now own three property assets. Now 40, they have plenty of options ahead of them:

This is a far better outcome than simply continuing to rent and saving for a property deposit for years and years…

That said, rentvesting does come with a few risks and downsides you need to be aware of:

There’s pros and cons to weigh up on both decisions, but the bottom line is: if you dream of owning a property, now is the time to look at all the options and make a plan to move you forward. If you’d like to find out your borrowing power and chat about your options, contact us today for an obligation-free chat on 1300 855 022.

Over the past 12 months there has been a deterioration of rents in the inner city unit markets across both Sydney and Melbourne. Rent values have fallen -4.9% in Sydney and -8.2% in Melbourne since March 2020. This has mainly come from the inner city regions. CoreLogic estimates that the City and Inner South market of Sydney accounts for 18.6% of investment units across the Greater Sydney region. The Melbourne inner region makes up an estimated 45.9% of investment units in the greater capital city.

Over the 12 months to March 2021, which captures 12 months since Covid restrictions were implemented, the City and inner south of Sydney has seen a -14.5% decline in the median asking rents from $620 per week to $530 per week. The median asking rents in Melbourne’s inner region sank by -18.9% from $475 per week to $385 per week.

These markets are disproportionately impacted by the closure of international borders where most overseas arrivals to Australia start out as renters. The halting of overseas migration has had a disproportionate impact on rental markets in these regions.

Whilst these markets are far from recovery there are signs that conditions may be stabilising. Median rents across units in the city and inner south of Sydney were lower over the year but have since risen 6.0% from a recent low of $500 per week in December.

Total unit rental stock on the market across Sydney and Melbourne is falling. In the month ending 11th April, the number of listed rentals did decline.

The elevated rent listings volume through the second half of 2020 across inner Melbourne shows how an extended lockdown and social distancing restrictions across the city had contributed to a deterioration in rents.

There are a number of reasons which may explain the curious stabilisation of inner city unit markets:

Conditions across inner city units seem to be stabilising, it is clear that the unit markets do have a long way to go before rents see a more consistent recovery trend. The return of international visitation to Australia has previously kept the rental markets buoyant amid high levels of new supply. A full recovery of rental incomes is unlikely until international arrivals are closer to pre covid levels.

Source: CoreLogic, April 2020

Confidence in Sydney’s rental market is starting to return as vacancy rates decline, according to the latest report from the Real Estate Institute of New South Wales (REINSW).

The vacancy rate in Sydney dropped to 3.4% in November, down from October’s rate of 4.3%. This is the lowest vacancy rate Sydney recorded since the first quarter.

All regions in Sydney reported declines in vacancies, with the inner-ring region dropping to 4.6%, the middle-ring to 4.4%. and the outer-ring to 1.8%.

“It’s been a long year and one that’s been full of challenges for everyone. When COVID-19 hit, many tenants were faced with the prospect of losing their jobs and had to make some hard financial decisions,” said Tim McKibbin, CEO of REINSW.

McKibbin said things appear to have started to settle, as people begin to return to work while other adopt a hybrid pattern of working.

“Overall, there’s a renewed confidence in what the future holds and this has had a flow-on effect to the residential rental market,” he said.

Vacancy rates in most regional areas in the state are also on the downtrend.

“The key message from this month’s results is that there is light at the end of the tunnel for both landlords and tenants,” McKibbin said.

A separate report by SQM Research, however, showed that rents continued to fall over the past month. Still, there are signs that could point to a reversal in the abundance of listings in Sydney CBD.

“They are still very elevated. But we could be starting to see some of the population moving back to the CBD and inner-city locations,” said Louis Christopher, managing director of SQM Research

Source: Gerv Tacadena at https://www.yourinvestmentpropertymag.com.au/

Comparison Rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This Comparison Rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different Comparison Rate. Fees and Charges Apply. Terms and Conditions are available on request.