Gen Rentvesting: Live where you want and buy where you can afford.
The Australian housing market looks undeniably difficult to get into. Perception does have a habit of distorting our reality. As generalised beliefs and values of one generation – formed in their respective environment at their respective time in history – can so often be handed down to the next generation. Even though the new, modern environment doesn’t necessarily suggest those values and beliefs are still valid.
“Rent money is dead money” no longer rings true. The statement itself is now close to being a bit of a con. Generations past may have invested in real estate for security, requiring a strict budget and sacrifice to obtain it. What happened is that they concentrated all their risk in one location, scarified flexibility and slaved away at their mortgage. Time in the market over an extended period of rising prices was a saving grace. Not a lot of investment smarts or savviness has been required to benefit from property in the past 30 years, other than time alone in the market.
Owning the home you live in costs a lot more than most people care to realise. No one remembers the interest that they paid over 30 years, no one remembers the costly repairs that always spring up at the wrong time, no one even counts the labour involved in mowing the grass each week! These days getting into a home in the first place requires years of financial discipline just to save the deposit. If you hypothetically earn $80,000pa your actual after tax income is $60,853. Now if you saved every dollar of your after-tax income it would take years of savings to build a deposit. Based on current average values, in this example it would take:
|Location||Current average value (RP Date Home Index Value (12/16)||Time to save a 20% deposit|
|Brisbane (incl. Gold Coast)||$549,630||1.80 years|
AND, it’s impossible to save every dollar that you earn. If you’re single, live in Sydney and have an after-tax income of $60,830pa you could be saving for eight or more years. Where will home prices be than?
Something interesting though is taking place in the property market as an emerging ‘tribe’ are rethinking the traditional home ownership model. This tribe has chosen to continue renting in a location they prefer and invest where they can afford. The strategy that the tribe applies is called Rentvesting.
Data from the NAB 2016 Q3 Residential Property Survey found that first home investors made up 12.2% of all new property sales, up from 11.1% on the previous quarter. They also represented 10.6% of all established property sales, again an increase from 9.7% from the previous quarter. This tribe is just taking an opportunity to invest in real estate in a way that allows them to invest for reasons such as comfort instead of security. Lifestyle instead of retirement and versatility instead of restriction.
Rentvesting is a method that allows the investment strategy to do the heavy lifting. It provides flexibility for your chosen lifestyle preferences whilst, allowing you to grow the largest asset base you can with the money you can afford.
Savvy modern investors see the current housing market and marvel at how the current working generation strips itself of the opportunity right in front of their eyes, all because they are seeing it through the eyes of a generation that isn’t their own.
Rethink. Reinvent. Rentvest.
Peter Mastroianni has been involved in the property industry for the more than 13 years. He is the founder of The Buyers Guide and champions the ‘Rentvesting’ cause through www.rentvesting.com.au. He can be contacted here.