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Rentvesting: is now the time to build your property portfolio?
October 6, 2017
Rentvesting, the latest real estate buzzword, refers to the strategy of buying a property in a more affordable area as an investment, while continuing to rent the home where you currently live.
Billed as a solution to the affordability crisis, it’s a great option for those who are keen to get onto the property ladder, but simply cannot afford to buy a home in the area which they desire to live in.
With the market in many capital cities putting owner-occupying out of reach for some first homebuyers, many are turning to rentvesting as a way to secure their slice of the “Great Australian Dream”. So, is now the time to look at building your rentvesting portfolio?
Rents up, vacancy rates tight
The latest data from CoreLogic shows that rental growth is on the increase across the country, with rents up 2.8 per cent nationwide. In the capital cities, rents have increased 2.7 per cent, while in regional markets they are up 3.0 per cent.
While rents in Canberra, Darwin and Perth have not increased, landlords in the other states have enjoyed this growth over the past 12 months.
In August 2017, gross rental yields nationally were at 3.6 per cent, with capital cities recording yields of 3.3 per cent and regional towns 5.0 per cent. While these figures are slightly lower than this time last year, with the exception of Adelaide and Canberra, it’s important to remember that yields are not the only indicators of the rental climate.
Vacancy rates are tight across the country, with the number of empty properties in Sydney and Melbourne at record lows, while in Hobart and Canberra less than one per cent of all rental properties were untenanted in July.
Capital growth has also continued, despite warnings of a market correction. For savvy investors, increased growth means the potential to grow your portfolio by drawing on your existing equity. There’s also the tax benefit afforded to investors via negative gearing, provided proposed changes to this scheme don’t get through the parliament.
The genius of the rentvesting strategy
These figures highlight the genius of the rentvesting strategy, particularly for those who wish to continue living in one of our expensive capital cities, such as Sydney or Melbourne.
By buying a property to rent out in a cheaper area, they can enjoy the best of both worlds – inner-city lifestyle close to work and entertainment, while also beginning to build their wealth for the future.
Regional areas have been popular with rentvestors, as they offer great value for money due to the comparatively lower purchase prices of property, relative to rents. As the CoreLogic data shows, landlords who own properties in regional areas can also expect a greater return on their investment than those with properties in the capital cities.
Increasingly, mainland rentvestors are turning to Tasmania to build their portfolio, as the low buy-in and tight vacancy rates make it the ideal market for those who can only dream of owning a property in their own capital city.
Where should you rentvest?
When considering where to purchase your rentvesting property, be sure to check rental vacancy rates for the suburb, so you can minimise the likelihood of the property being unoccupied (and not earning you any rent) for too long.
You should also become familiar with your target market, to ensure the property will be attractive to prospective tenants – for example, near public transport if you’re hoping to lure students, or with a safe and spacious garden if families are your key demographic.
If you play your cards right, you could have one foot on the property ladder and the other in your rented inner-city abode, and be on your way to building your own real estate empire!