Have you tried Rentvesting?

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Trends in 2017 and beyond

Many millennials find themselves caught between a rock (renting in a rising property market and seeing the homeowner’s entry bar rise over time) and a hard place (buying an affordable property to live that’s reasonably accessible to their places of work, train stations etc).

Some savvy young people have discovered a third option between the two—‘rentvesting’. A typical example is to rent a decent place in an inner-city suburb (say, Paddington in Sydney) and buy an apartment in Brisbane costing considerably less than a similar property in Sydney and renting it out to subsidise if not cover the rental in Sydney.

This strategy allows them to get on the property ladder before lagging too far behind—a pathway to financial independence earlier in life. They get to enjoy the inner-city lifestyle (cafes and pubs and beaches) while taking advantage of negative gearing and capital growth on their investment property.

Bank interest rates and wage growth are both at historical lows and, while not flatlining, are unlikely to see a dramatic spike anytime soon. A rentvesting strategy, if done with careful research on rental and, more importantly, investment properties also optimizes their cash flow without having to forego their hard-earned leisure activities.

Location, location, location

For occupiers and investors, they are always on the lookout for dwellings in suburbs that offer long term capital growth. Those that are close to employment hubs, good infrastructure, train stations, reputable schools, shops, cafes and local amenities continue to enjoy high demand.

Apartments close to the CBD continue to enjoy high tenant demand, especially those within walking distance to work. They enjoy low vacancy rate and are highly desirable for investors.

Buying with help from family and friends

Affordability continues to be a key issue for many home buyers particularly the first home owners.

Taking Sydney as an example, property prices have risen 65% over a five-year market cycle from 2012. Home ownership rates are declining and the younger generation are at risk of being priced out of the market.

While there is no perfect property that meets all your criteria and remains affordable to your limited resources, it’s possible to reduce compromises on quality with financial help from friends and relatives, especially parents from the baby boomer generation. Indeed, one in five first home buyers in Australia are doing just that.

While it’s true that “home is where the heart is”, for an increasing number of young people, home is where they grew up in and where they remain close to their parents’ hearts. Personal-space compromises of continuing to live in the family home in the medium term is mitigated by a vision of financial independence.

Continuing preference for quality property assets

Acquisition of quality property continues to be preferred over acquisition of other asset classes. According to CoreLogic estimates, property holdings account for the highest net worth nationwide (in trillion AUD):

  • Residential housing: 7.3
  • Australian super: 2.3
  • Listed stocks: 1.8
  • Commercial real estate: 1.0

Quality property portfolios offer comparable interest returns (if not higher) to bank deposits and attract long-term future capital growth.

In the context of longer term goals, it’s prudent to look at growth potential in picking a suburb and property. There is an infrastructure boom in several Australian cities including Sydney and to a lesser extent Brisbane. Infrastructure development in some regions have overtaken mining as the principal driver of economic growth. Taking Sydney as an example, Green Square, Badgery’s Creek, the Northern Beaches Hospital and Westmead Medical precincts are among the booming suburbs.

Besides massive infrastructure developments, there are other contributing factors that makes the property market the preferred choice over other asset classes. These include the jobs growth and migration trends.

Job Growth 2012—2017
  • NSW: 36.7%
  • VIC: 36.0%
  • QLD: 16.5%
  • WA: 5.7%
Migration Trends

Strong across NSW and Victoria, picking up in Queensland, weak in South Australia and Western Australia.

Amalgamation

There is an increasing trend where neighbours have joined forces together to sell their properties to developers, achieving a much higher return in view of their collective bargaining power and the willingness of buyers to pay big bucks for development of new apartment blocks in prime areas.

Developers continue to look out for areas with potential fueled by population growth and close to employment hubs and good infrastructure.

Case study

In July 2017, four neighbours in Caulfield North, VIC  banded together to sell their properties to a cashed-up apartment developer for a combined price of $8.7 million—an average of almost $2.2 million per property. A massive reward for their smart strategy and coherence. They profited financially by between 10-20% more by dealing with buyers as a team.

 

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