Despite the recent drop in property prices in Sydney and Melbourne, purchasing in a centrally-located or sought-after area is still out of reach for the average working millennial (I can hear the older generations talking about smashed avocados while I write this).
Instead, many are opting to rent rather than buy as it means not having to compromise their inner city or beach-side lifestyle. That's a respectable decision - after all, there's more to life than being a hermit and eating beans on toast for dinner. But for those who are still eager to enter the market, there is a way to get the best of both worlds.
‘Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location and continue to live and rent in the area of your choice. You might even invest outside of your chosen state. Read more on interstate investing here.
An example of how the market is evolving, #rentvesting is a wealth creation strategy that is popular among the younger generation due to the flexibility it offers in comparison to being an owner-occupier.
“Millennials aren’t interested in purchasing a property in the outer suburbs and then having to commute into the CBD. Rentvesting allows your rental income to cover the mortgage expenses, so you can keep living the lifestyle you want without it costing you any money. If you're really smart about it, it could even help FUND your lifestyle. And yes, I mean money in your pocket each month from your investments.”
For this strategy to work, you’ve got to be a good saver and there needs to be a focus on delayed gratification. It’s all about living within your means. Don’t spend big at the start while you’re building it up. Step away from the mentality of negative gearing and tax minimisation and buy neutrally, or ideally, a positively geared property as this provides higher rental yields.
A recent survey highlighted an increase in ‘rentvesting’ from 21 per cent of investors to 37 per cent over the past twelve months alone. But while this strategy may appear ideal to many, it’s not suited to everybody.
It’s still a new way of thinking. In the past, the great Australian dream was to buy a home on a quarter acre block and then do everything you can to pay that down as fast as possible in the hope of living debt-free. ‘Rentvesting’ is quite the opposite. It says we’re okay with good debt as long as we stick to our budget and keep using the money to invest further. You’ve got to have an open mind and be comfortable with debt.
To ensure you have the means to make ‘rentvesting’ work for you, contact us for advice on good debt and other strategies that will allow you to maintain your current lifestyle.
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