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Property strategy that allowed Aussie to grow wealth by $150k and crack into ‘insane’ market

Buying a home in Melbourne was not affordable for Emily Simpson. So she decided to rentvest instead.

As property prices continue to skyrocket across the country, more young Aussies are turning to a new trend to get their foot on the ladder without sacrificing where they want to live.

‘Rentvesting’ is a strategy where a buyer purchases an investment property in a more affordable area while continuing to rent where they want.

Emily Simpson is one such rentvestor, telling Yahoo Finance she had originally hoped to buy a property in Melbourne where she lives and works but found prices were “too expensive” for her to afford; something she says is still the case today.

Emily Simpson rentvesting
Emily Simpson bought an investment property in Horsham for $295,000 and continues to rent in Melbourne. (Source: Supplied)

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“I was looking at an apartment last year in Mont Albert that was a two-bed, one-bath and that was still $570,000 to $600,000. The repayments alone were $3,000 a month, which is insane,” Simpson said.

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“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, who works as a property manager for Little Real Estate, instead decided to purchase a three-bedroom, two-bathroom townhouse in her hometown of Horsham in the Wimmera region of Victoria for $295,000 in 2019.

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She currently rents it out for $380 per week and says the rental payments are usually just enough to cover her mortgage repayments, along with household bills like insurance and water.

Simpson herself rents a three-bedroom, two-bathroom house in Blackburn South for $510 per week, which is about a 20-minute drive away from her work in Hawthorn.

Emily Simpson rentvesting with investment property sale sign.
Simpson said her investment property had already increased in value by more than $150,000. (Source: Supplied)

Recent data from Commonwealth Bank found millennials were the most “active” property investors, accounting for 46 per cent of all of the bank’s investment property purchases. This trend is being driven in part by rentvestors.

George Cherchian from James Chase Buyer's Advocacy he was also seeing a surge of millennial clients who were entering the market through rentvesting in the face of high property prices and lagging wages.

“It allows you to take advantage of all the benefits [including] long-term growth, the compounding effects and the ability to access equity after a period of time and reinvest that,” Cherchian told Yahoo Finance.

“That’s a huge benefit because you’re ticking your lifestyle goals and are also creating wealth at the same time, albeit in a different way.”

While there are several benefits to rentvesting, Cherchian said it was important for buyers to do their research and make sure they were aware of the drawbacks.

“You are very much at the mercy of a landlord who may decide to sell the place that you are renting, they may decide to increase the rent or review the rent. So you are definitely at the mercy of someone else,” he said.

“You’re also going to forego government grants because you’re not going to get that as an investor and there are tax considerations.”

Here’s Cherchain’s rundown of the pros and cons.

  • Gets you into the property market with potential capital gains

  • Live where you want with the flexibility to move

  • Earn rental income

  • Tax benefits and the potential ability to claim deductions on investment expenses

  • Still a renter and may have to move or your rent may go up

  • Won’t benefit from first home owner grants and schemes

  • May face capital gains tax if you decide to sell

  • Additional responsibilities as a landlord, including maintenance and repairs, as well as leasing agent fees. There's also a possibility you could go without a tenant for weeks or months and would need to cover all costs.

For Simpson, the pros of being a rentvestor have outweighed the cons. She plans to continue rentvesting for the foreseeable future, with Melbourne property prices still too expensive for her to afford.

She’s also grateful her landlord hasn’t increased her rent by a lot over the last few years. She recently got a rental increase of $30 per week.

“If they put it up anymore I probably wouldn’t be able to live here anymore,” she said. “I’m very thankful that it wasn’t up too much and I didn’t have to move because I don’t think I would have found anywhere else.”

Emily Simpson and rental property
Simpson said she's happy she decided to rentvest and is able to live where she wants in Melbourne. (Source: Supplied)

Simpson has also already seen capital gains on her investment property, with the Horsham townhouse now worth an estimated $450,000 - an increase of more than $150,000 since she purchased it in 2019.

Cherchain said there was no “one-size-fits-all” approach to choosing an investment property and recommended buyers do their due diligence if they are thinking of the strategy.

“But what I would look for generally is to invest in areas that have a good mix of employment opportunities, access to schools, areas that are going through gentrification and have some government investment,” he said.

"Look for areas that people want to be living in."

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