What Is “Rentvesting?”

Getting into the property market for the first time is a daunting concept. Most are not particularly concerned with mortgage repayments because they are often quite similar in price to monthly rental obligations. 

Securing the deposit, covering the legals and the “additional” overheads that often get overlooked, such as stamp duty, can make the whole process incredibly overwhelming. 

But wealth creation is a long game. If you are in the early stages of your career, considering a change of scenery or even approaching the end of your working life, you can, and should, consider starting your property portfolio because it is one of the most stable mechanisms for generating passive income.

Taking Melbourne and regional Victoria as an example, property prices are on the rise. So too is the population. Melbourne is projected to become Australia’s most populated capital city within the decade, with the population expected to reach 8 million (Melbourne) by 2050 and 10 million state-wide by the same time.

As it stands, the current population is around 5 million and it doesn’t take an extraordinary level of insight to work out that this expected increase in people will have to live somewhere. Growth areas in the south, west and northern parts of Melbourne will flourish with houses, estates, and gated communities. The vacant parts of land that lie between Melbourne and regional towns like Ballarat and Bendigo will become urbanised, particularly as the work from home shift continues to grow and a daily commute into the cities becomes obsolete. 

Even as we speak the council that governs the Gisborne and Macedon ranges, an area 90 minutes north-west of Melbourne, are in discussions with developers to create 5,000 new homes in a gated community that will consist of parklands, shopping centres and schools. 

Looking at the data, if you are considering venturing into the property market, “waiting” for the right time to buy is not going to work in your favour. There is never a right time to get into the market, but what we do know is that the market value is continuously going up. Thus, waiting will only leave you with higher costs and a greater barrier to entry to start your portfolio.

Consider the fact that in 1966 the average property in Melbourne was a shade under $10,000. Twenty years later, the average price had increased to $100,000. Almost thirty on from that and one in three Melbourne suburbs has a medium price point of over $1 million. 

Based on those figures, is it reasonable to assume that in another thirty years we’ll see another ten-fold increase in average pricing to $10 million? One would have to assume that there is zero chance of this, but if you told someone back in 1966 that in half a century from now they’d be paying a million dollars for a house, they’d probably say you were mad.

Scraping together the deposit for a property in the inner suburbs can be such a daunting concept, particularly when you consider cost of living increase and wage-growth not keeping up very well with the inflation that many are beginning to put the dream of property ownership firmly in the “dream” category.

Not mincing words, this is probably true. However, it does not mean that one cannot begin their property portfolio in less-developed areas. This is at time not considered as an option because of the “inconvenience” of living in a rural area, or even in a regional township. 

Many have not considered the concept of “rent-vesting” which is purchasing a property in an area that you can afford and renting it out to those find it convenient for their situation. 

You can simply rent where you want to live that suits your lifestyle.   

The objective is to have the mortgage of the property you have purchased covered by the tenants’ rent. The property will naturally increase in value and give you the type of equity that bank love so you can borrow against the accumulated increased value, and purchase another property, put renters in that and so on.

With the expected population increase and the trends of the property market to attain greater value, now is the time to consider buying your first property.