“As a single person living in Sydney I knew there was no way of getting my foot in the door, looking at where property [prices] are going,” McCoy told TND.
“It was never going to be achievable, the repayments were just going to be too much.”
Instead, McCoy purchased an investment property in Brisbane and began renting it out, all while continuing to pay rent at her residence in Sydney.
“When you’re growing up you just assume you’re going to buy a house and move in,” she said.
“It was weird to commit to mortgage repayments in a state I don’t live in while also having to essentially pay off someone else’s mortgage in Sydney.”
But after two years putting in hard yards to pay down her mortgage and keep up with rent, McCoy has managed to build up considerable equity as property prices soared in Brisbane.
The home owner now has more options; she could use the equity to help purchase a home to live in, or even leverage further into another investment property in another city like Adelaide.
Rentvesting on the rise
Rentvesting has been growing in popularity among first-home buyers recently, with younger Australians forced to get creative to get into the market amid soaring prices and higher rates.
Analysis of ABS data by rate comparison firm Mozo shows 6.8 per cent of first-home buyers are investors in 2024 – representing 4188 people in the first half of the year – up from 4.2 per cent in 2020.
“There’s been a significant shift in the number of Aussies choosing to invest in their first property, rather than live in it,” Mozo’s personal finance expert Rachel Wastell explained.
“Soaring property prices and high rates are influencing new buyer’s strategies, and while lightyears away from dominating the first-home buyer market, this small cohort of investors is growing.”
Financial adviser and On Your Own Two Feet founder Helen Baker said the rise of rentvesting shows Australians are needing to be more creative to get into the property market these days.
A generation ago it took average income earners just a few years to save enough for a deposit on a typical home in Sydney or Melbourne, but today it can take more than a decade of saving.
But there’s plenty to consider before taking the plunge on a rentvestment, including balancing mortgage repayments with rent and ensuring you’re purchasing in an area primed for growth.
“It’s good to look at where you want to be long term,” Baker explained.
“People who live in cities but eventually want to go live on the beach, this gives them an opportunity to get a foot into the property market.”
Karen Nguyen is another rentvester. Having moved to Sydney at 18 she struggled to get a foot into the property market in Australia’s most expensive city, and instead bought in Adelaide.
The home owner went to Tiimley Home for a loan. It said it had fielded a 8.4 per cent increase in people looking to rentvest with their first property in 2024.
“I grew up in Adelaide, so I was familiar with the area,” Nguyen said.
“The supply and demand data was strong in the Adelaide market and the rental yield was attractive compared to other capital cities.”
Rate risks and other costs
Baker was actually a rentvester for some time and explains that it’s important to plan carefully before taking the plunge, including for the possibility that interest rates could rise.
Depending on your circumstances, rentvesting might not be a good option for you, so it’s vital to seek independent financial advice first so you can properly weigh up all the pros and cons.
“The biggest risk is this uncertainty out there in the market around interest rates,” Baker said.
“Work your plan around whether you could still afford it if interest rates increased significantly.”
There are other costs to consider too, including body corporate fees, maintenance and what you will do if you’re unable to have the property rented out all the time, such as if someone leaves.
Wastell said another factor to keep in mind is that investment loans typically come with higher interest rates.
The special first-home buyer offers from banks are typically only available to owner-occupiers,” Wastell said.
“Investment properties can be challenging, so you also need to consider whether your potential returns will justify your out-of-pocket expenses and the increased risk of negative cash flow.”
McCoy’s experience highlights how rentvesting can be difficult to pull off financially – she said that her rental income hasn’t been enough to cover mortgage repayments.
That means she’s had to put extra into the property while also keeping up with rents for her Sydney residence.