Rentvesting and the affordability crisis

Rentvesting and the affordability crisis

The Australian Housing Market is Still Growing

I recently spoke with Hans Kunnen, the Chief Economist of St George Bank about the outlook of the economy. The good news is he believes that there are more positives than negatives and that we aren’t about to enter a recession anytime soon. He pointed to the fact that macroeconomic indicators on the international stage show China’s middle class still growing (albeit at a slower rate) and with the United States starting to get their economy back on track (as seen with the recent interest rate increases), the outlook is rather promising. Back on home soil, positive indicators are represented by growing infrastructure, incredibly low interest rates and with the Australian dollar low and stagnating we are seeing a lot of interest from overseas investors.

It’s important to note that the residential housing market is worth $6.5 Trillion dollars in Australia - compare that to the entire value of Australian Listed Stocks at $1.5 Trillion and there is no doubting that residential property has been the bedrock of wealth for Australians historically. There is no indication that this will change anytime soon.   

Is the Great Australian Dream of Owning Your Own Home Now Out of Reach?

Well, if I am quite honest,  it could very well be. According to latest MLC report, almost two-thirds of Australians believe the next generation will never be able to afford their own home and will not enjoy the same standard of living as their own, with half of those surveyed, believing they won’t be able to maintain their own standard of living in 10 years time.

Combine sentiment with a population projected to top 36 million by 2050 and you start to get the idea that demand will only fuel the housing affordability crisis. Australia is one of the most expensive property markets in the world with latest figures showing Australian capital city prices marching higher yet again (following a pullback in late 2015). Sydney house price average has tipped the $1 million mark - something unfathomable just a couple of years ago. Many would-be first time buyers are simply priced out of the market, stimulating growth in the rental market and fuelling concerns about increased international investment, tax concessions heading to the wealthy rather than those in need and loosing of bank lending standards.

Should younger Australians just give up on the idea of creating wealth through property ownership?

I believe, the answer is simply no, they just need to be a little savvier than their parents. There is an increasing trend seeing people purchasing investment property while paying rent for a principal place of residence. They call themselves – ‘Rentvestors’. In the early days of my property investment journey, I personally adopted the strategy and I am now seeing  a number of clients doing the same with great success:

Take Lou – she lives in a beautiful beachside rental and rents out her investment properties. This affords her the lifestyle of her choosing, while still investing in her future. 

There is also Hailey – after being made redundant she found herself unable to make her mortgage repayments. In an extreme case of ‘Rentvesting’ she lives out of a van and rents her property out as an investment.

And then there’s Sandra – she lives a relaxed lifestyle in Mexico and has investment properties in Australia – ahh the life!

Planning to own your own home in the future

So while affordability is a real issues for many Australians hoping to get their feet wet in the property market, ‘Rentvesting’ is fast becoming a popular solution. It’s certainly a different model to what their parents employed, but the fact remains that planning to own in the future rather than today – as a strategy, can be just as fruitful as the traditional model. You just have to give it a go….

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