There is no ‘one size fits all’ when deciding to purchase your first home and repay your own mortgage rather than continuing to rent and repaying someone else’s mortgage.
With the past few years of increased property values combined with rising interest rates, purchasing property has become less attractive for those wanting to enter the market.
Only 10 months ago, when interest rates were at their all time low, we reported that over a third of Australian properties were cheaper to own than rent2.
But according to PropTrack Buy or Rent Report [June 2022] only 27% of dwellings across Australia are currently cheaper to own than rent.
What a turnaround in such a short time!
So it appears that rentvesting may come back as a popular incentive for first home buyers who still want to get into the property market but don’t want to give up their lifestyle of living and partying where they want.
Rentvesting as an investment strategy in property is gaining popularity in Australia3. It refers to a strategy where an individual buys a property that fits their budget and rents it out while they rent somewhere else that may better suit their lifestyle.
Figures from the Australian Bureau of Statistics (ABS) indicate that up to 15% of all of Australia’s private tenant households are rentvestors. This percentage represents approximately 340,000 Australians.
This strategy seems to be more popular with younger investors and appeals to those who are still single and want to engage in the property market.
Pros of rentvesting vs home ownership
- Rentvestors could enter the market sooner with relatively smaller savings. Rentvesting targets lower-value areas which may require a smaller deposit
- You could afford to live in a better property or area than you can afford to buy
- Provides flexibility for movement in jobs and location. You don’t have to pay for selling costs and stamp duty each time you move
- While saving a larger deposit for your home, you’re also entering the property market at today’s value.
Cons of rentvesting vs home ownership
- You may miss out on the First Home Buyer Government incentives.
- Limited freedom to change aesthetics or decorating where you are renting
- Less certainty. The landlord’s circumstances may change and affect your tenancy. The rent may increase or the lease may come to an end
- PropTrack Buy or Rent Report [June 2022]