What is rentvesting?

WTH First-Place Building Co. managing director Daniel Senia.

First-time home buyers have traditionally had to sacrifice their lifestyle to build a home in an area they can afford, moving from a suburb they’ve rented in and have built a life.

For those struggling to break into the market, less expensive areas are sometimes the only way to get into the market while interest rates rise and affect their borrowing capacity.

With rentvesting, first-time buyers can stay living where they are while building an investment property they can afford. Long term, they can leverage the equity in their investment property to buy or build their dream home in the area they want to live.

What are the benefits of rentvesting?

Building an investment property in a new growth area is simply less expensive, so it helps you enter the market sooner. While there are peaks and troughs, housing pricing is Australia have consistently risen over time – as have construction costs – meaning there is the likelihood of it being less and less affordable to buyers as time goes on.

Investment properties in more affordable locations often provide better rental returns, so mortgage loan payments are often a similar amount to what you can rent homes for. This isn’t typically the case for inner-city and more expensive suburbs because the costs to buy are often much greater in proportion to the cost to rent.

As you continue to rent where you live, you are building an asset that you own which over time can be sold or used as equity for further investment purchases or to build your dream home in your preferred location. All without giving up your lifestyle.

What should you watch out for?

There are a couple of key things to look out for when rentvesting. You want to make sure that you are not overcapitalising on your investment property. Meaning, don’t go for all the bells and whistles as you want to ensure the rent that you will receive will cover most of the cost of the mortgage.

You want to look to invest in affordable areas with high rental returns. For example, regional Victoria currently offers the best bang for your buck with high rental demand, access to titled land and consistent capital growth. Look out for key rental benefits such as infrastructure and public transport, proximity to schools as well as universities and shopping centres.

You also want to ensure that you have the income, especially as interest rates rise, to make sure you can cover the shortfall between the rental yield and the mortgage repayments without creating too much strain on your personal cashflow.

Daniel Senia is the Managing Director of First-Place Building Co. with over 18 years’ experience in the new home buying industry working with some of Australia’s largest home builders and developers.