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The Rise of the First Home Buyer ‘Rentvestor’ in Australia

Posted on 16 October 2015

Record numbers of first home buyers in Australia are choosing to buy investment properties rather than live-in homes, according to recent data.
Pushed out of the housing market by escalating prices, first home buyers are increasingly choosing to stay at home or live in rental properties while buying an investment property as their first step on the property ladder.

This allows younger buyers to stay closer to the inner city while also taking advantage of tax breaks and low interest rates.

Figures released this year by Mortgage Choice show that the proportion of ‘rentvestors’ – first home buyers choosing investment properties – has doubled over three years.

Less than 10% of investors were first time buyers in 2011, according to the data. This figure was shown to have increased to 22% in 2014.

Maintaining your lifestyle while your tenant pays off the mortgage might seem like the best of both worlds, but it’s not all plain sailing.

Let’s have a look at the pros and cons of this increasingly popular practice.

The advantages of rentvesting


  • Live where you choose. First home buyers in Australia’s bigger cities are getting fed up with living in a far-flung house in the outer suburbs, with lengthy commute times and little access to city amenities. More and more they’re choosing to rent homes closer to the CBD, letting their tenant live in that far-flung house in the outer suburbs instead.
  • The tenant pays the rent. With interest rates still at record lows in Australia, many rentvestors are finding that their rental returns cover their mortgage payments – an ideal scenario for property investors.
  • Stay at home and pocket the income. First home buyers are increasingly buying investment properties then going back home to live with parents. This allows them to save up the rental income for their dream home later on, Andrew Fawell, director of Melbourne’s Beller Property Group, said in Domain.
  • Great capital growth. The prospect of continued capital growth in a very hot Australian property market – especially in Sydney and Melbourne – is fuelling the rentvestor trend, with first home buyers determined not to miss out on their share of the property boom.
  • Tax advantages. Property investors can take full advantage of a range of tax incentives including negative gearing, write offs, deductions and depreciation. None of these can be claimed on a house you live in.

The disadvantages of rentvesting


  • Unruly and unreliable tenants. Rentvesting is fine in theory, but you have to be prepared for problem tenants. Property managers can usually deal with these for you but breakages, theft, insurance claims, abrupt departures and disappearing rent can all leave you out of pocket.
  • Rental costs. There are plenty of hidden costs when buying an investment property that you have to factor in. Property management, landlord insurance, accountant fees and spells when the property is untenanted are just a few of them.
  • Difficulty finding tenants. Make sure you buy your investment property in an area of high tenant demand. The tried and true checklist includes being close to public transport, accessible to shops and leisure facilities, and being in a desirable school zone.
  • Fluctuating interest rates. Payment might seem easy with interest rates at record lows, but be aware that your variable mortgage rate is still at the mercy of the market. Consider fixing an attractive rate for up to five years – this means you can budget for years ahead and reduce your mortgage headache.
  • Fluctuating rental returns. If you buy your investment property when rents are soaring, remember that they can decline at any time. If this coincides with increasing interest rates, your mortgage is suddenly more difficult to pay.
  • Increased vulnerability. The Reserve Bank of New Zealand studied the housing market in Ireland, which suffered a massive crash during the GFC. They found that investors were no more likely to default than owner-occupiers while the economy travelled well. They were more than twice as likely to default, however, during the crisis.

So cash in on the rentvestor trend, but do your homework first, and that includes pre-purchase pest and building inspections in Melbourne and Sydney, or wherever the property is located. Don’t get left holding a lemon. Melbourne and Sydney both have their share of older properties, and you have to know the structure is sound, and pest-free.

It’s always a good idea to consult your banker or accountant before making any big decision as well.


By Darel McBride


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