For young Australians who want to enter the property market but can’t afford to buy a home in their desired location, ‘rentvesting’ offers a fantastic solution. This strategy is particularly valuable now, as property prices in Australia have risen 8% over the last financial year[i] while rent prices have stabilised[ii].

How rentvesting works 

Rentvesting involves renting a property in the area where you want to live while investing in property elsewhere. This approach allows you to get onto the property ladder at reasonable cost by purchasing an investment property in a less expensive location while living in your preferred area. 

For instance, if you want to live in Sydney, Melbourne, or Brisbane but lack sufficient savings for a deposit, you could rent a property in the capital city of your choosing while using your savings for a home loan deposit to purchase an investment property in a more affordable city, such as Darwin or Hobart, or a regional growth hub such as Wagga Wagga in NSW or Queensland’s Townsville. Properties in these alternative locations might also generate higher rental yields. According to the latest data from CoreLogic, the median price for an apartment in Sydney is around $855,468, with a gross yield of 4.0%. In Darwin, the median apartment price is $363,748, with a yield of 7.5%.

You can rent the Darwin investment property to tenants, using the rental income to cover the mortgage repayments and other associated costs. Buying an investment property in a more affordable location will mean lower mortgage costs, enabling the rental income to cover more of the loan repayments.

Over time, it may be possible to build up enough equity in the rental property to purchase another investment or to sell it and use the proceeds to buy a home in, or closer to your preferred location.

In NSW, Wagga Wagga, Bathurst, Orange, and Tamworth are good options for rentvestors seeking a first property. In Victoria, Ballarat and Bendigo tick plenty of boxes. In Queensland, coastal regions such as the Sunshine Coast, Gold Coast, Townsville, and Cairns are appealing to rentvestors.

Advantages of rentvesting

Flexibility: Rentvesting allows you to live wherever you want while building wealth through a quality, well-located property investment. A rentvesting strategy also offers flexibility, making moving easier if circumstances change, such as getting a new job in a new town or region.

Affordability: Purchasing an investment property in a more affordable location allows you to enter the property market sooner than if you were trying to buy a home in a more expensive area.

Tax benefits: Owning an investment property may come with tax benefits, such as the ability to claim deductions on expenses related to the property.

However, as you won’t live in the property, you will generally miss out on first-home buyer grants and stamp duty breaks. It’s essential to do your sums with the help of an accountant before committing to a rentvesting strategy. 

Is rentvesting right for you?

Rentvesting can be a sensible way to enter the property market, especially for those who want to live in a more expensive area but can’t afford to buy there. By carefully considering the costs and benefits of rentvesting and working with a trusted and experienced real estate agent such as Raine & Horne, you can determine if this strategy is right for you. 

[i] https://www.corelogic.com.au/news-research/news/2024/australian-homeowners-gain-$59k-wealth-boost-from-rising-housing-values-in-fy24
[ii] https://www.domain.com.au/news/rents-are-still-rising-across-australia-but-at-a-slower-pace-1298897/