Millennials and Gen Z take out most investor loans amid rent-vesting boom
Millennials and Gen Zers are taking out the bulk of investment property loans, as so-called rent-vesting gains momentum as a way into the real estate market.
More than 50 per cent of property investment purchases in the past year were made by millennials and Gen Z, according to Commonwealth Bank data.
This strategy allows buyers to purchase an investment property in an affordable area while continuing to rent in their preferred location – maintaining lifestyle while building equity.
Ray White chief economist Nerida Conisbee said the rise of rent-vesting came as the traditional path of saving for a deposit while living at home, then buying in the same city where you work, has become increasingly unviable.
Her research found that only 55 per cent of millennials aged between 25-39 own their home. That compares to 70 per cent of baby boomers at the same age in 1991 and 65 per cent of Gen X in 2006.
“This dramatic shift reflects more than just affordability challenges – it represents a fundamental change in how young Australians must approach homeownership,” she said.
Foot on the ladder
Rent-vesting was the approach that 30-year-old Lydia Burgess and her partner, also 30, took to get a foot on the property ladder.
The Sunshine Coast couple snapped up their first property in the Brisbane suburb of Stafford Heights, and plan to rent out the three-bedroom house.
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“We were kind of serious about buying a few years ago, but didn’t do anything about it and have seen prices then just skyrocket in Brisbane since Covid,” Burgess said.
While she said they planned to live in the Stafford Heights house one day, rent-vesting it was a way to get into a home before prices rose even further.
“We can’t afford to not rent it out,” she said.
Rent-vesting had also become more common in her circle to get into the property market.
“I can see benefits for rent-vesting in the long term, particularly for your first purchase,” she said.
Ray White Wilston agent Holly Bowden, who sold the Stafford Heights home, said she was seeing more rent-vestors in the market, with renovated, ready-to-rent properties a popular choice.
“Investors want move-in ready and ready to rent places,” she said.
Two ways to profit
Conisbee said there were two approaches to rent-vesting.
Buyers can look for properties and areas that offer capital gains or a high rental yield.
For capital gains, that means buying a property that will go up in value and therefore put you ahead.
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“The objective is straightforward: When it comes time to sell, the difference between purchase and sale price helps bridge the gap between your budget and your desired home price,” Conisbee said.
She noted that capital-gains investors typically targeted suburbs at the beginning of medium-term appreciation cycles.
Current market conditions favour areas where there is population growth, infrastructure development, or economic transformation.
The other approach is a high rental-yield strategy – buying a property that offers a good return on rent for what you paid.
“This strategy appeals to investors preferring reliable income streams and those wanting to use additional cash flow to accelerate their savings for future property purchases,” Conisbee said.
“High-yield properties typically exist in regional centres, areas with specific employment anchors, or locations where housing demand exceeds supply.”
Rent-vest buyers can seek capital gains or high rental yields. Photo: AAP
Flexible living
There are other advantages to rent-vesting a first property buy.
Rather than being anchored to one location by a mortgage, rent-vestors can relocate for career opportunities while maintaining their investment portfolio.
The psychological pressure of homeownership – being responsible for every repair, rate rise, and market fluctuation on your primary residence – is also reduced.
Investor loans and tax breaks also offer advantages.
“The financial mechanics work particularly well in Australia’s current market conditions,” Conisbee said.
“Investment property loans, while requiring higher deposits and carrying slightly higher interest rates, offer significant tax advantages through negative gearing and depreciation benefits.
“These tax efficiencies can substantially improve the investment’s net return.”
This article first appeared on View.com.au. Read the original here
