According to a study of Millennials and Gen Z by Deloitte, buying a home has gone from first in the list of future aspirations down to third (now being beaten by travel and earning more money). It’s no wonder with the average household income ($109,000) to average property price ($1,200,000) gap widening in Sydney (like most capital cities) to 11-12 times average earnings. In the 1970s, it was just four times earnings. In real terms, this means that the average home is nearly 3 times as expensive than just fifty years ago.
This is something that especially first home buyers in the big capital cities are experiencing first hand. This has made the Australian dream seem more and more like a figment of their collective imaginations. The Betterway Team recently helped William and Ruth get into the property market using a strategy we call “rentvestment”.
William and Ruth both grew up in Cranebrook in South Western Sydney. After spending the last 8 years living and working overseas, they recently came home to Australia and spend 18 months living with William’s dad (rent-free). They saved a deposit of $65,000 towards their dream to own a two-bedroom apartment in Mascot, close to both their works and where they could start a family. When they began saving, they were looking at apartments for $650,000 so needed a 10% deposit ($65,000). Unfortunately, since then the property prices have risen to over $700,000 meaning their deposit isn’t big enough anymore.
Getting on the property ladder to ride that price growth up rather than having the rising tide drown out their savings seemed impossible. That’s when they heard about “rentvesting” from Betterway. The idea behind rentvesting is to invest in a property they could afford right now in an area they didn’t want to live in, then that property rent out using the income from the property to pay their rent where they DID want to live.
By eliminating the need to live in the home, they significantly broadened the areas where they could purchase. This enabled them to turn their investment decision into a purely return on investment decision allowing them to invest in an area with higher potential returns rather than being restricted to a small number of suburbs in which they wanted to live.
William and Ruth chose to purchase a 3-bedroom duplex home in the suburbs of north Brisbane, an area with huge developments being laid down across the region. They purchased the property for $620,000, the developer guaranteed them a return of 6% ($715 a week) for the first two years of ownership. One of the great investment decisions of buying in a newly developed area is as it becomes an established suburb, the value of the property goes up faster than the surrounding, already developed, areas.
They rented a two-bedroom apartment in Mascot, close to both their jobs, for $650 a week. So, the rental income from their QLD rentvestment covered the rent on their Mascot apartment plus a little bit extra towards the mortgage. Leaving William and Ruth to pay just the mortgage as if they were living in the home themselves.
They found the sweet spot for investing where the rental return is high enough to cover the costs of their rent allowing them to enter the property ladder, so they benefit from the rising prices.
Over the next few years, William and Ruth plan to use any bonuses, pay rises and extra rent they receive as extra mortgage payments. Although no one can tell the future, they estimate within two years they’ll be able to pay enough off their loan and build their equity in their “rentvestment” property in QLD to refinance and buy a second investment property. Depending on the market, they may decide to buy their own apartment in Sydney, but that’s a story for another day.
Betterway Projects has helped others invest in a rentvestment property. Give us a call or enquiry today to discuss your options with our experts.