To rent or to buy?
That is the question facing many Australians given the current challenges of housing affordability.
As property prices have risen through the last cycle, it has become difficult for first home buyers to enter the market.
For example, the current median house price in Sydney is $1,101,532 and median unit prices are $734,775, according to the Domain State of the Market Report for September 2018.
Whilst the latest Demographia International Housing Affordability survey (released January 2019) found all five of our top capital cities were still severely unaffordable.
The survey uses the “Median Multiple” (median house price divided by median annual gross pre-tax household income) to assess housing affordability.
Any city with a ratio of greater than 5.1 was considered severely unaffordable.
This has prompted some to consider whether renting a property is their only option to get onto the property ladder.
Rentvesting is when an aspirational property owner invests in a property, within their budget, to rent out and then rents a property where they would prefer to live.
For example, let's imagine a young couple with two children wants to invest in a three-bedroom home close to the beach on the Gold Coast.
The sales prices in these suburbs means that unfortunately these properties are not affordable.
A rentvesting solution would be to rent a property in the area where the couple want to live, and invest in an affordable investment property in a suburb with good growth drivers.
The property the couple buys can then be rented out to help cover their own rental payments and later sold for a capital gain.
This has allowed many Australians to maintain the lifestyle they want to live now, whilst also building a property investment portfolio for the future.
With any financial decision, it’s important to discuss your financial profile with your financial institution or mortgage broker, so you get a complete understanding of how much you can afford to borrow and repay and get a finance solution for your individual circumstances and goals.
There are many pros and cons of rentvesting for you to consider, and a great place to start is this educational webcast.
It gives you an overview of the rentvesting strategy and can help you decide whether you can use it to grow your own property investment portfolio.