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One in five first home buyers are purchasing property to rent out, not to live in. What’s behind the meteoric rise of young investors?
Property investing has long been stereotyped to be the terrain of cashed-up Baby Boomers, but data is suggesting that another generation is increasingly leaving its mark on the investment landscape.
Millennials – those born between 1981 and 1996 – comprised 46 per cent of new property investors with Commonwealth Bank in 2023.
And it’s a number that is slated to rise: in February this year, the Australian Bureau of Statistics (ABS) reported a 21.5 per cent increase in new investor loans compared to February 2023, and it was Millennials who were leading the charge.
“Millennials, who make up a high proportion of middle-income earners, have few choices in the inner suburbs and even the next ring or two are too costly,” explained Simon Withers, business growth manager at RE/MAX Australia.
“Through rentvesting, they can buy in a less expensive outer fringe location while they rent closer in.”
According to Withers, Millennials are keenly aware of the importance of getting onto the property ladder as soon as possible to secure their financial future.
With property prices exceeding wages, rentvesting is sometimes seen as the only viable path towards home ownership.
It also has the added bonus of maximising lifestyle.
“You might work in the city, really like the lifestyle and don’t necessarily want to leave. However, it would be near impossible to come up with the deposit needed to buy where you want in the city, so you can continue renting while you look to a regional location, where it’s more affordable and you can get a good rental return,” Withers said.
This investment strategy also opens options for greater diversification than would otherwise be available for an owner-occupier.
“By not needing to live in the area in which you’ve invested, you can spread the risk of the capital by investing in several suburbs or even states with high returns on rentals,” said Withers.
Despite these many benefits, Withers warned that there are also downsides to this strategy.
“The cons [of rentvesting] may be that you lose the full capital gains tax exemption; you may be ineligible for grants; you are at the mercy of your landlord – your lease might not be renewed, the property might be sold, the rent might increase – and you might get sick of hearing that ‘rent money is dead money’ from those that don’t understand your rentvesting strategy.”
“You should aim for the best understanding of the financial outcome you are trying to achieve before making any investment decision,” he concluded.
