When you think of your typical property investor, there are plenty of images that pop into your head. In fact, we had covered in a previous blog post on who Australia’s average property investor was. The answers were quite surprising. It was not the highly paid executive with plenty of money to put into property nor was it the foreign citizen who outbid Australian first home buyers at the auctions looking for a safe haven for their millions. The truth was that it was that our typical property investor here in Australia a high middle-income earner who invested in one or two properties in order to build a nest egg for their future.
With this mind, what about the typical rentvestor. Who are these investors who choose to rent while purchasing properties for the purpose of investment? Which group of people are the driving force behind this new property phenomenon? Westpac was asking this same question when then shared research on who exactly these rentvestors were.
Through this article, we are now able to understand that rentvestors are not mysterious groups of bankers trading property like index funds, instead they are young males, gen Y and most likely single with a bachelor degree. They are earning relatively high incomes and they don’t feel the same way the previous generation did about owning their own home. They see property as an investment, a way to accumulate wealth rather than a place to settle down a raise a family.
Most rentvestors entered the property market at the right time, the two years prior to our boom in the eastern capitals. Those savvy decision makers saw that property prices were moving rapidly in an upward trajectory and while they had no intention of settling down with a mortgage, they didn’t want to let the rising property market roll past them without jumping on board. While continuing to rent at their share houses and studio bachelor pads, some even at home with mum and dad, they decided to purchase a property for the purpose of investment.
This makes sense, you see the trends and you don’t want to be left behind. You may not have the funds to purchase in the area close university or work, so you buy where you can afford, in areas that are showing strong signs of potential growth. The investor doesn’t have to uproot their lifestyle and the property market moves in their favour.
Rentvestors currently make up around 8 percent of homeowners and the trend is showing no signs of slowing down, especially as our real estate continues to lock many out of those areas that suit their lifestyle. In fact, research prepared by Ipsos on the housing market had shown that around 41 percent of people believe that it is a smart move to buy an investment property in an affordable area while continuing to rent where they actually live. This was particularly true of Asian Australians, with up to 58 percent agreeing that this would be the better decision and those who lived in Sydney responded higher than average at 47 percent.
Furthermore, the survey showed that there is a growing consensus that our cities will be dominated by renters as 70 percent of people believe that the next generation will be renting for the rest of their life. This could be the result of the changing Australian dream, no longer is it about owning your own home, instead it is now towards having a desirable lifestyle and a highly secure investment strategy to safeguard the future.
This current property market is very much unique to generation Y coming of age. They are living in a time where interest rates are at record lows while housing prices have surged to incredible heights and incomes remain stagnant. This means that it often makes more sense to hold onto property, allowing tenants to help with the mortgage while the investor benefits from the economic conditions rather than saving for a home that may be difficult to afford, especially in areas that are highly desirable.
This way they are able to own their property much sooner as well as leverage the equity in their investment to further their wealth or ultimately, purchase the home that they truly want. Whether the rentvestors will go down this route or not, time will tell.
While we may be seeing a surge in rentvestors and a shift in the mindset of Australia’s about what our nation’s dreams are, the fact is that Westpac’s research paper revealed that 60 percent of Australians still desire their own home, and this is becoming increasingly out of reach for many of the young generations who struggle with high property prices and the challenge of saving for a deposit.
The concept of rentvesting could be a generations solution to a housing crisis that they are not letting remove their right to own their own home in the country they grew up in, what happens once these markets cool down, we really don’t know but it is possible that the decisions made by those making the most of surging house prices could benefit them over the long term. For some, rentvesting means they are simply getting by, surviving in a housing market that is far out of reach for Australians that are making it on their own.
This paints a much bleaker picture of rentvesting and it really does come down to how well the investor performs their research, focusing on areas which have a high potential for growth. This can be difficult to determine for those who are not familiar with many of the factors that go into determining a property’s value. With the right tools at one’s disposal, they can get their foot on the ladder with a property that will continue to provide benefit to their financial situation for many years to come, regardless of the decisions they make down the line, whether to continuing renting or move into one of their investment properties.
As the market slows down or even declines, we may see more and more rentvestors taking up living in their own properties, particularly if rental rates begin to catch up with house values in which case this generation may have achieved the Australian dream in their own unique way while also benefiting from a long-term investment strategy that made the most of economic conditions that suggested home ownership would skip their generation, once again, only time will tell.