Fletcher Rowe | September 7 2017
On first glance, the rise and rise of capital city markets has excluded a generation of first home buyers. Young Sydneysiders and Melburnians are instead forced to remain long-time renters, or otherwise relocate interstate and forego their Surry Hills or Little Bourke St cold drips and smashed avocado.
The reality is, the door has been opened for a new type of first home buyer who are able to purchase affordable properties in high growth areas while hanging onto their inner city creature comforts.
The strategy is called “rentvesting”, where buyers will purchase within their price range in satellite cities (such as Newcastle, Wollongong, Geelong, Ballarat) while continuing to rent in their desired location. These buyers are able to take advantage of the tax and income benefits of investing while they build equity, says Peter Mastroianni, founder of rentvesting.com.au.
“Most people underestimate the costs of owning their home, the interest paid over 25 or 30 years of a mortgage, the renovations that don’t add value, the maintenance costs, the rates. Housing is expensive,” he said.
When investing, these ongoing costs become tax deductible, which increases the affordability of home ownership.
In 2014, rentvestors made up 20% of all investment purchases. Within 2 years, this had increased to a third, according to a Mortgage Choice survey. Westpac’s April 2017 Property Report showed more first home buyers are now choosing to invest rather than live in their first property. This is as high as 24% in NSW and 20% in Victoria – home of the most expensive state capitals.
However, not everyone is sold on the strategy, with many concerned that the mindset could be driving up an already ballooned housing market while creating a “city of landlords”, says Anthony Ziebell, founder of tenancy advocate Don’t Rent Me.
“We have a serious housing affordability issue in Australia and it’s convincing those who are the most impacted by it – renters – to be digging their own graves.
“[Rentvesting is] perpetuating the problem and kicking the can further down the road. This generation can’t afford to buy a home so they buy an investment property, what happens to the next generation who can’t afford either?”.
Others believe in the approach as a way for prospective buyers to get a foot in the door, including YBR’s Mark Bouris, and First Home Buyers Australia’s co-founder, Daniel Cohen, who described it as a “great strategy”.
Once you secure your first property, it becomes easier to dip your toe in a second time (and beyond). It’s designed to help you grow a strong portfolio until you have the equity and savings to purchase in your preferred destination.
Some lenders are now accepting strong rental history as “genuine savings“, allowing buyers to purchase more against a property’s value and rely on a smaller deposit, while the First Home Super Saver Scheme lets first home buyers build and grow their first home deposit by taking advantage of tax concessions through their superannuation.
Borrowers are also utilising their parents’ equity and income to help them compete with seasoned investors.
It goes to show that the Australian dream of owning your own home is still alive and well; it is just taking some creative thinking and expert advice to get there.
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