How to get ahead in 2020 by rentvesting
by Emma Allen
Buying a home in 2020 can seem out of reach to everyday Australians. But there’s one strategy that savvy first homebuyers are using to not only get on the property ladder, but to grow a portfolio and build lasting wealth.
Unaffordability – which relates to how easy or hard it is for a person with an average Australian income to buy a home – is the most crippling trend impacting first homebuyers, and in past 5 to 10 years, it’s only worsened.
Consider this: the average price of a property in Sydney in 1983, when today’s typical first homebuyer wasn’t yet born, was 4 times the average salary. You may have been earning $20,000 per year, but the average home only set you back around $80,000.
In 2019, the median property value in Sydney had reached 11 times the average salary, and in Melbourne it was more than 8 times the average salary.
With the average national full-time wage sitting at around $85,000, and the median house price in Sydney well over $900,000 (in Melbourne, it’s not far behind), it’s easy to see why these numbers seem insurmountable to first homebuyers.
The smarter – and faster – way to get on the property ladder
To get ahead and build wealth through real estate, there’s only one option – take action and get in!
It’s no longer about buying the ideal home in the ideal suburb. It’s not even about buying a home that perfectly suits your needs. It’s about getting your foot on the property ladder however you can, so you can make the most of whatever deposit you have access to.
The youth of today are smart, unafraid of change and they sit at the brink of social change. For this reason, they don’t have to be left behind as property price growth moves on without them. But they do have to do things a little differently – something most millennials are open to, being our most adaptive and creative generation yet!
This is why rentvesting is such a great investment strategy that many young professionals are utilising. Rentvesting is when you rent where you want to live, and invest where you can afford.
Property prices are so high that getting a deposit together for a home in your desired area – requires a six-figure deposit, in most cases – and being able to repay the mortgage on large debts is not financially viable for many.
With fewer people being able to afford home ownership, the number of people renting continues to rise (nationally it’s up 4% over the last decade). For rentvestors, this means there is a steady and growing stream of tenants ready to rent the property you invest in, paying off your mortgage for you – while you rent in an area that ticks your wishlist from a lifestyle perspective.
There are several benefits to rentvesting, including:
- Luxury living: you can afford to rent in the area you love, which may be out of reach to buy.
- Flexibility: you can pursue a new job opportunity, move interstate or even take a sabbatical overseas and continue to own your investment property
- Financial prosperity: you have a smaller mortgage commitment, but retain the benefits of owning a tangible growth asset
Many people are using rentvesting to get ahead, because it simply makes financial sense. As an example, let’s run through a scenario with a hypothetical client, Sam.
Sam had been diligently saving a property deposit for a couple of years, but it was hard to reach six-figures in savings – and if the bank approved her, she didn’t know how she would service a massive loan.
So, instead of buying her first home, Sam invested in a property in a capital city, near a major employment hub interstate, with great access to transport, schools and amenities. She only needed $65,000 to cover the deposit, stamp duty and legals to purchase this 3-bedroom property.
There are many factors to consider before rentvesting but as a first-time property owner, Sam was able to navigate the pitfalls of investing with our guidance. A tenant moved into the property within one week of settling and Sam now has her foot on the property ladder; owns an asset in a growth location that increases in value each year; accesses thousands of dollars in tax and depreciation deductions each year; and has someone else paying off her mortgage.
Rentvesting is a strategy that I’ve helped a number of our clients embrace in the last few years, to help them get their foot on the property ladder and start building financial security. If you’d like to chat about how we may be able to make a rentvesting strategy work for you, contact us today.