Why more young people are choosing to 'rent-vest'

Millennials pride themselves on working smarter, not harder and the rise of ‘rent-vesting’ – where first-time buyers get onto the property ladder by renting where they want to live and buying elsewhere – is a perfect example.

Research shows rent-vestors are now a large yet distinct category of property buyers, especially in Sydney, where the median house price has skyrocketed in the past decade.

According to a 2017 study commissioned by Westpac, rent-vestors make up about 8% of homeowners – and the figure is tipped to rise. It found in most circumstances high prices were driving young buyers to look to cheaper areas to get a foothold in the market, while renting elsewhere.

Westpac says rent-vesting – first noted as a trend by property group LJ Hooker in 2013 – is most popular among Generation Y men who are usually single, hold a degree and earn a relatively high income. They’re less emotional about home ownership than the broader population and see property as part of a suite of investments.

Ken Wilson, a RAMS Home Loan Specialist from Rosebery in New South Wales, says he’s witnessed a spike in the number of people choosing to rent-vest in recent years and believes the main reason for this all boils down to it making good financial sense.

“If you can’t afford a certain area, it makes rational sense to live where you want to live, but buy a property elsewhere in a more affordable area and use it as an investment,” he says.

“It’s a way to potentially shore up your financial future, but also maintain the lifestyle you want,” Ken explains.

For those priced out of Sydney, saving a deposit and buying somewhere else, such as a regional area, could deliver steady rental income to service the mortgage and capital growth, he says.

 
Rent-vesting allows you to snap up an investment property outside the pricier capital cities. Picture: realestate.com.au/buy

“Buying a property remains the biggest financial investment most people will ever make, but this approach is a just a little more strategic,” Ken says.

Taku Ekanayake, a 29-year-old rent-vestor from Sydney agrees that it all comes down to dollars.

After setting out to buy a Sydney home to live in, Taku switched track to rent-vesting and now owns multiple tenanted properties, living “where he wants” in rented accommodation.

“I was very committed to getting onto the property ladder and after researching, I came across the idea of buying an investment property, rather than a home first. The numbers were more appealing to my position in life,” he says.

The rent Taku collects covers most, if not all, of his mortgage repayments and expenses. And he’s able to carry “good debt”, which is income-generating debt and tax-deductible investment debt.

It’s a strategy that could be a good option for anyone, he adds. “I’d encourage anyone looking at purchasing a property to do the numbers on both buying an investment property versus a home to live in – and really do the numbers, purely from a financial point of view,” Taku says.

“The first home you buy is not going to be your dream home, for most anyway. So, why get so attached to the idea of buying a home first?”

Originally published on flatmates.com.au