Westpac senior economist Matthew Hassan told Yahoo Finance that rentvesting is an option, with more Australians starting to "consider alternative paths to homeownership".
“As rates come down, they'll be looking to pull the trigger on a purchase... But the reality is that affordability is still very stretched," he said.
82 per cent are open to purchasing in an area they hadn’t originally considered
54 per cent are looking at rent-vesting as their first foray into the market
New South Wales is the rentvesting capital of Australia, with 61 per cent considering buying a property there, followed by Victoria (54 per cent), and Queensland (52 per cent).
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But if this trend becomes more popular, rentvestors could come up against increased competition, and there are fears this could drive up prices.
Hassan cast doubt on this prediction and told Yahoo Finance that in many markets, prices are already too high.
"There will be a bit of a tug of war as as the cycle plays out," he said.
"Sellers will be hoping that buyers will be able to meet the market and deliver better prices, but we think there's not a lot of head room for prices to really lift from here."
What is rentvesting?
The concept focuses on buying a home in a less expensive, high-growth area but renting where you would like to live.
You might invest in somewhere just a few suburbs over from where you want to live, or it could be a spot on the other side of the country.
Many have hopped on this trend, particularly young people, to have the best of both worlds: living in a more metropolitan area, while also getting on the homeownership ladder at a cheaper rate.
Emily Simpson had originally hoped to buy a property in Melbourne where she lives and works but found prices were “too expensive” for her to afford.
"The repayments alone were $3,000 a month, which is insane," she told Yahoo Finance.
“I can either live there and not do anything with my life because I would be paying that off or keep renting and be able to afford to do things outside of work."
The 31-year-old Little Real Estate property manager instead got a three-bed, two bath townhouse in her hometown of Horsham for half the price of smaller apartment in Mont Albert, an eastern suburb of Melbourne.
Emily Simpson bought this house in her hometown as it was far cheaper than buying in Melbourne. (Source: Supplied)·Source: Supplied
“I can either live there and not do anything with my life because I would be paying that off or keep renting and be able to afford to do things outside of work.”
She said rentvesting was the perfect solution, much like Sydneysider Karen Nguyen.
The now-landlord bought a home in her native Adelaide, where the median house price is currently more than $373,000 cheaper than Sydney. She was then able to buy another investment property in Rockhampton.
Nguyen is paying $900 a week in rent in Sydney while she rents out her three-bedroom Rockhampton home for $520 a week.
“I’m looking forward to building my portfolio over the next few years and creating good cash flow once interest rates come down, and hopefully be able to purchase my dream home in Sydney one day,” she told Yahoo Finance.
Risks of rentvesting
Commonwealth Bank research found that 46 per cent of their new property investors in 2023 were made up of those born between 1981 and 1996.
The Your Mortgage Home Loan Hindsight report also revealed that one in six Aussie Gen Z borrowers had recently taken out an investment loan, making them the most likely generation to do so.
But Hassan cautioned that you need to be careful if you're taking this approach.
"Sometimes you have additional issues about not being familiar with the area that the property is in, particularly if it's interstate," he told Yahoo Finance.
"You need to ensure that, alongside your due diligence responsibility, you understand your roles and responsibilities as a landlord to a tenant.
"There's probably more work involved than being an owner-occupier in a lot of ways, but a lot of these things are part and parcel of being a homeowner in general."
Nguyen admitted buying an investment property was a “learning curve”.
Karen Nguyen said she was able to get onto the property ladder by buying in areas cheaper than Sydney. ·Source: TikTok/Karen Nguyen
Her first investment property was positively geared for the first two and a half years and increased in value by more than $100,000.
However, her properties became "a little negatively geared" with interest rate rises, meaning the rent she gets isn't enough to cover her mortgage.
“Every investment comes with its risk and not all investments work out - so you have to enter the market as an investor with this mindset and be ready to face the challenges,” she said.
Claudia Stevenson, who is renting out her Scotsdale home in Melbourne while she rents a bigger property in nearby Altona, also warned rentvestors that being a landlord comes with "hidden" costs.
"If the heater at Scotsdale needed repairs, we had to get it replaced quickly," she told Yahoo Finance.
"While this is part of owning your home it did mean if we were relying on the rent that month, and there was none. It was tight."
She said if you live in a property you own, you might be able to delay repairs until more money comes in, but usually with a tenant you only have 48 hours to get important things fixed.
Regional and rural property prices going against the grain
Rentvesting has had an impact on the price of property in regional areas.
In a housing crisis, this can create problems for locals trying to secure a home in increasingly competitive markets.
Properties in almost half of suburbs in capital cities dipped 0.7 per cent in the three months to January, according to CoreLogic.
Conversely, house prices in roughly three-quarters of regional Australian suburbs recorded a 1 per cent increase.
"With more people able to prioritise lifestyle over job location, the flow of internal migrants to regional markets has settled higher than the levels seen pre-COVID, helping to support housing demand," CoreLogic economist Kaytlin Ezzy said.
