With double-digit rent increases appearing to be entrenched for some time yet, does it still make financial sense to be a rentvester?
This is a question that we have been considering given the strong increases in rents that are being recorded across the nation.
Contrary to appearances in a high rent environment, rentvesting remains a solid – and sometimes – even recommended investment strategy for some property investors.
Anyone who may be a bit younger, or who lives in an expensive city like Sydney or Melbourne, could still be considering rentvesting as a strategy given it generally remains cheaper to rent a house in our biggest cities than it is to buy one.
The truth of the matter is that mortgage repayments have risen more than rents have over the past year, which has actually reduced the number of suburbs where it is cheaper to buy than rent according to the latest research.
According to CoreLogic, the number of suburbs where it’s cheaper to buy than rent has tumbled in the past year, due to the record number of rate rises that outpaced rising weekly rents.
In fact, CoreLogic’s analysis of 3,904 house and unit markets nationally found just 9.1 per cent of suburbs were cheaper to buy a house than rent, down from 30.2 per cent of suburbs this time last year. For units, just 16 per cent of suburbs are cheaper to buy in than rent, down almost 30 percentage points from 45.2 per cent last year.
These sorts of market metrics highlight the fact that – whether you are a homeowner, investor, or tenant – we are all currently experiencing upward price pressures on our mortgage repayments or rents.
The record low interest rates were always temporary, and today’s higher rate environment is on par with historical averages – it’s just got to the current level more quickly than most of us were expecting.
Market conditions had been improving since early this year, with the latest research showing prices starting to move upwards once again.
Rentvesting has always been a solid strategy for anyone who is keen to invest in property but who doesn’t want to have to sacrifice their lifestyle or location to achieve it.
The rentvesting strategy generally suits property buyers who want to remain renting in desirable locations where they can’t actually afford to purchase themselves, but who want to make the most of the money they are earning right now.
By purchasing in a more affordable location than their current home area, investors can potentially have the best of both worlds – that is, living and renting in the suburb of their choice while simultaneously using their income or savings to invest in property elsewhere.
It was always advisable for investors to seek qualified expert advice when considering purchasing in areas they are not familiar with and especially when buying interstate. Market fundamentals differ from area to area, plus, there is the added burden of inspecting properties interstate.
Unfortunately, the ‘sight unseen’ buying trend that has been prevalent over recent years has the potential for investors to purchase property lemons because of their lack of knowledge about other locations and the tyranny of distance making it very difficult to attend inspections.