Rentvesting: Why many first home buyers are becoming investors
The cost of owning a home in Australia might be going up in some areas but that hasn’t stopped some from buying into the market.
According to a new research from valuation company, Herron Todd White, first home owners are simply adjusting their expectations when it comes to home ownership: choosing to become investors instead of owner occupiers.
“Many a would-be first home buyer has switched from planning to be an owner-occupier to taking the first step on the property ladder as an investor,” says the report, which was released last month.
“The research found that 13% of first home-buyers nationally are opting out of buying an owner-occupied home, and instead choosing to purchase an investment property while living in the family home.
“This figure rises to 24% in New South Wales and 20% in Victoria – home to Australia’s most expensive state capitals.”
What is a rentvestor?
Basically, rentvensting is homeownership with the opportunity to live where you want. For example, if someone can’t afford to buy a property in their dream location, they purchase one as an investment in a more affordable area, while renting where they really want to live.
With the right property, there is potential for a positive cash flow, paying the mortgage for you.
What to look for when buying an investment property
According to the report, property prices in some states are increasing rapidly; while in others, the pace of growth is slowing and in some, stalling.
The challenge, then, is to find the perfect property: one that is affordable but also has tenant appeal.
“It’s important to understand what you’re trying to achieve and which strategy you’re going to use to get there”, says Buyer’s Agent Rob Stanley.
Rob says there are three main investment strategies he uses to achieve financial freedom for his clients.
Capital growth strategy
“A capital growth strategy is when I buy a property with the expectation that it will increase in value over a period of time.”
Cash flow strategy
“A cash-flow property investment strategy is where the priority is cash-flow.”
“Renovation is a strategy where I actively seek out properties that my clients can improve or renovate to boost the value or rent.”
Where the best rental yield opportunities lie
In New South Wales, the report talks very highly of investing in Chippendale, located 2km from the CBD and is near the University of Sydney, University of Technology and Royal Prince Alfred Hospital.
The median price for units in Chippendale is around $800,000. Not to mention, “Rental yields are around 3.5% to 4%, which compares favourably to neighbouring Surry Hills, where yields are closer to 3%.”
Potts Point is also a hot to spot keep on your radar, with one-bedroom apartments receiving a rental yield of 4.4%.
The Inner West, Southwest Sydney and Sutherland Shire were are also mentioned as areas beaming with great investment opportunities.
Bigger isn’t always better
Maximising your rental yield shouldn’t necessarily be a key goal of buying property – it really depends on what role you want the property to play within your investment portfolio. It may be in your interests to keep your investment property’s yield lower – if you plan on negatively gearing it, for example.
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