While owning your own home was once the great Australian dream, buying a home can feel unattainable for many today.
Overall, homeownership rates have remained relatively static at 67%–70% since the 1970s. However, generational statistics tell a different story. In the 1970s, 50% of 25– 29-year-olds and 64% of 30–34-year-olds were homeowners. As of the 2021 Census, these numbers have declined to 36% and 50%, respectively.
Declining owner-occupier rates have given rise to rentvesting, a strategy for those who feel locked out of their local property market.
What is rentvesting?
Rentvesting is a property investment strategy that involves renting a residence in an area where you prefer to live while owning investment properties in locations that offer better affordability or higher growth potential.
This strategy separates lifestyle and investment decisions, allowing investors to optimise both.
Who should consider rentvesting?
Rentvesting is worth considering if you value flexibility in your living situation or are looking to get started in property investment but are priced out of your ideal living locations.
It can be a great option for renters to ensure they are using disposable income to grow their finances, offsetting the ‘rent money is dead money’ effect.
It’s also suitable for investors looking to diversify their portfolios across different geographic areas to mitigate risks associated with economic fluctuations in any single market.
How does rentvesting work?
At Apt, we design bespoke strategies based on your circumstances and goals to ensure rentvesting allows you to live for today while planning for tomorrow. Below, we look at a case study of one couple as an example of what can be achieved.
Jaya and Tom* first approached Apt with a deposit of $200k, household income of $259k per annum and a $66k annual cash flow surplus. Despite these figures, their borrowing power wouldn’t see them into a home that suited their needs in their desired area, and they didn’t want to try for a larger loan that would potentially cause financial stress if interest rates rose.
They also liked the flexibility of renting but wanted to ensure they were still getting ahead.
So, we started by building a bespoke financial plan, one that would allow them to retain flexibility while growing their savings. Here’s a summary:
- $141k of the deposit was used to purchase two investment properties, borrowing $557,040 to fund the purchase.
- After mortgage repayments and rental income, the couple retained a healthy $61k annual cashflow surplus.
- We put $50k into a tailored share portfolio.
After one year, Jaya and Tom were able to use the newly accumulated savings to purchase a third property, dropping their annual cash flow surplus to $53,750.
Two years later, Jaya and Tom have $606,105 in investable assets (net of loans), equalling a wealth improvement of $406,105. Despite rising interest rates and a 25% rent increase on the rental property they live in, the couple is able to save $39,916 per annum.
Is rentvesting the right strategy for me?
If you are interested in rentvesting, it’s a good idea to talk to an expert financial adviser who specialises in the area. At Apt, we closely examine your financial situation, lifestyle, circumstances and goals to help you decide if it is the right strategy for you.
With a connected network of leading professionals, we can build you an expert team or work with your existing professionals, including accountants, mortgage brokers, buyer’s agents, vendor’s agents, solicitors and more.
You can find out more about our rentvesting services here. Ready to get started? Book a free chat with the expert advisers at Apt Wealth Partners on 1800 801 777 or
in**@ap*******.au
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*Names and some details changed to protect identity.
General Advice warning
The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.
