Gen Y make early entry into property through rent-vesting: John McGrath

More young Australians are taking to rent-vesting, a trend where young buyers – typically Gen Y, purchase their first property for investment purposes rather than living in it, says John McGrath in his latest blog in Switzer.

Rent-vesting is one of the most important emerging property investment trends in Australia today.

"Unlike the Gen X and Baby Boomer buyers before them, Gen Y is not willing to sacrifice their lifestyle in order to own real estate," McGrath says.

"While Gen X and the boomers didn’t mind purchasing in affordable locations on the outskirts of a city and often far away from work, beaches and CBD nightlife, Gen Y doesn’t want a bar of it. They certainly share their predecessors’ desire to own property but lifestyle is priority one."   

So they’re buying for investment first in affordable suburban areas while renting in the trendy inner city locations that are priced beyond their means, he says.

Other Gen Ys are remaining at home with mum and dad to save as much money as possible before flying the coop.   

These junior investors are typically buying in middle to outer ring suburbs where rental yields are strong and the bulk of the rent covers the mortgage, meaning little out-of-pocket expenses and minimal impact on their lifestyles while getting great start in property.

"Once you’re in the market, it becomes much easier to buy other properties (either more investments or the dream family home) down the track with accrued equity," he says.

"Hats off to these buyers. This is a fantastic example of markets evolving as property values rise and lifestyle areas become unaffordable for those just starting out in real estate."  

According to McGrath, Rentvesting really took off after the First Home Owner Grant changed. When it was first introduced, the grant was available for all types of first home properties. When the rules changed and the grant became only available to newly built or off-the-plan properties, the incentive for young people to buy their first property for owner occupation was reduced.

A recent Mortgage Choice survey shows Rentvesting has increased from 21% of investors to 37% over the past 12 months alone.

McGrath lists two important trends among junior investors.

First, they are getting in early. Domain research shows the average age at which Gen Y buys their first property investment is 25 years compared to 35 years for Gen X and 45 years for Baby Boomers.

Secondly, junior investors are building larger investment portfolios than their predecessors, who typically aimed to own their own home outright with maybe one investment.

The reasons could range from trying to mitigate uncertainty over the future of the pension and the understanding that superannuation is unlikely to be enough on its own when they retire. Hence the need for income assets. 

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