Due to Australia’s growing housing affordability crisis, many young people are choosing to make their first property purchase an investment property.

The practice is known as “rentvesting” and involves purchasing a rental property as an investment while renting another property in which to live. Rentvestors now make up 3% of first-home buyers nationally, according to industry research. This figure rises to 24% in New South Wales and 20% in Victoria – home to two of Australia’s most expensive state capitals.

Thirteen percent of first-home buyers nationally are opting out of buying an owner-occupied home, and instead are choosing to purchase an investment property while continuing to live in the family home, according to Westpac and Herron Todd White’s NSW/ACT Property Report – April 2017.

Optimism among first-home buyers is declining due to sky-high property prices. According to new research from the Commonwealth Bank of Australia (CBA), less than half of respondents (48%) still think the great Australian dream of property ownership is alive and well. Not surprisingly, respondents from Sydney and Melbourne were the least optimistic that they could afford a home.

According to many experts, rentvesting is a great for first first-home buyers to enter the property market.

“Rentvesting is a smart property acquisition strategy that’s giving potential first-home buyers the opportunity to buy sooner rather than later,” said Michael Yardney, CEO of Metropole Property Strategists. “It’s a lifeline for those who are trying to gain a foothold in a property market that’s essentially a moving target – that is, growing in value faster than many home buyers can save a deposit.”

Yardney calls rentvesting a “paradigm shift” away from the notion that people should buy their own homes first before delving into the property investment market. “In today’s property climate – where house prices are rising at record-breaking rates – what used to work is no longer an easy option,” he said.

With homeownership in Australia slowly declining and renting on the rise, rentvesting could save people from being renters their entire lives. “It gives struggling first-home buyers an opportunity to enter the market – even if they’re not buying the home for themselves.”

Essentially, the rent-and-invest strategy is to buy an investment property first, and rent where you want to live. “It’s a tactic that overcomes financial obstacles and exorbitant property prices, because you can buy in a location that fits your budget and then rent in a location that suits your lifestyle.”

“It works because even though you’re renting, the property you buy is an asset that’s growing in value, assuming you choose a smart location and are being paid off by your tenant. Not only that, but you’re gaining equity that can launch you into other property purchases down the track, including (when the time is right) a home to call your own,” Yardney said.

But what determines a smart location? To ensure success, investors should identify and purchase high-growth investment properties. “In the medium term, the best opportunities for strong sustained capital growth will occur in the inner and middle ring suburbs of Melbourne and Sydney. While these locations are expensive, a well located one-bedroom apartment in one of these areas would make a great investment.” 

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