It can be a tough decision to make, especially when you are at a crossroads in life. Live where you want to live in the more expensive suburb and keep renting or purchase a property in the outer suburbs to start paying down a mortgage. When you are young, this decision can feel impossible, you aren’t ready to settle down but you want to make a decision that will benefit you in the future, so where do you go from there?
Rentvesting has been a solution for many young buyers who want to get into the housing market yet would struggle to afford to live in the suburb of their choice. Those that identify themselves as rentvestors, people who rent in lifestyle suburbs while having investment properties in high yielding, more affordable suburbs, have been a growing group according to Westpac Research covered in this realestate.com.au article.
The trend has followed the dramatic rise in Sydney’s median house price over the last year, with a 106 per cent increase. We can see the direct result of what can be achieved by rentvesting with an example from the article. If you were to rent out a two-bedroom unit in a lifestyle such as Mosman which is advertised around $600 a week, you would be paying far less than the $1060 weekly mortgage repayments for a similar property valued at $1 million.
Meanwhile, if you were to use the capital that could be potentially saved from this decision, you could purchase a three-bedroom unit in the outer suburb of Penrith for around $450,000, renting at around $350 a week. With the yields in Penrith being much higher than those in a suburb like Mosman, you can make significant savings in payments, increasing disposable income as well as your investment potential. A young inventor can continue purchasing property, building equity and increasing their net worth while they are still able to enjoy living in a suburb that suits their lifestyle.
Rentvesting is enabling more people to hold property in their name in a market that is becoming increasingly difficult to break into. The advantage here is that young people need not compromise their lifestyle to purchase a home in an undesirable location nor does it mean they must become burdened with high mortgage repayments just to maintain their location. Rentvesting enables flexibility and smart investing.
The trend towards rentvesting is likely to continue with rising prices in capital cities and yields being reduced to historical lows in many suburbs close to the city, an indication that it is more financially viable to rent. For these reasons, it is important that more young people are educated on how rentvesting benefits their lifestyle, budget and financial wellbeing not just now but well into the future. There are numerous resources on rentvesting which can found online as well as through a session with the rentvesting mentoring team who can walk through those first steps towards the strategy and getting on that first rung of the property ladder.