Wherever you look these days, the narrative is the same. Home prices are simply too unaffordable for the younger generation. This national sentiment is expressed by not only younger individuals, but their parents and older generations.
So how can a young person, who is seemingly up against all odds, get into real estate? One answer to this question is ‘rentvesting’.
What is Rentvesting?
Under the traditional model, the young adult would save enough for a home deposit, obtain a home loan at a competitive rate, and move into their first home. However, a wrinkle with this model is that median home prices have reached levels that make saving for that first home deposit unattainable. Further, while mortgage rates are historically low, there are a host of lending restrictions that may exclude a portion of young adults from securing financing on their own.
Rentvesting suggests that you hold off on moving into that first home. Instead, you continue to rent for longer than you would prefer. The expected savings you would gain from renting over home ownership would then be used to invest in that first property, and potentially others after that one.
While this approach aids with saving for the home deposit, it doesn’t directly address the financing concern. Therefore, if a young adult is incapable of obtaining financing on their own, the rentvesting strategy would need to be coupled with a guarantee/financial support.
My Personal Experience With Rentvesting
I’ve written previously on how my son built his real estate portfolio before 30. He was largely able to do so by living at home well into his 20s.
While he secured a decent first job, he lacked the assets and lending history to obtain home loans on his own. As such, we co-signed on his first property so that he could obtain financing at a competitive rate.
To be clear, my son didn’t live with us rent free. When he started working, we negotiated a below-market yet reasonable figure. While this didn’t financially burden my son, it mirrored the financial responsibility he could expect from renting elsewhere. The subsidised rent also meant he could save more towards building his property portfolio.
Now I appreciate this approach will not work for everyone. However if possible, it makes sense to leverage strong relationships with your parents or relatives. Trust me when I say that it’s mutually beneficial. We loved having our son stay with us and witness him realising his dreams first hand.
* * * *
The content outlined above was written, edited and published by the Lost Realtor. The author has over 20 years or real estate sales and investing experience in the Australian property market. He has held senior positions in Australian building companies, including being the General Manager of the residential sales division of Collier Homes. His qualifications include a Bachelor of Commerce degree and a Graduate Diploma in Building and Construction Law.