30 ‘rentvesting’ markets for a budget of $500k to $800k

Commenting on the limited options available to young home buyers, Well Home Loans chief executive Scott Spencer said this target group is left “having to choose between buying an inner-ring or middle-ring unit – which might not suit someone who is planning to start a family – or buying a house on the city fringes – which can be hard if you have to commute to the CBD every day.”

To address this dilemma, Well Home Loans has commissioned research firm Suburbtrends to look at fresh options that could help first home buyers hop onto the property ladder.

According to the study, first-time home buyers in Sydney and Melbourne with a budget of $500,000 to $800,000 could be better off renting units in appealing suburbs and buying high-growth investment houses in regional areas or interstate through “rentvesting”.

Explaining what rentvesting means, Mr Spencer said it’s a strategy where “buyers rent a unit in their dream suburb and buy a house for investment purposes in a cheaper market with long-term growth potential”.

Mr Spencer has noted that the objective is to get your foot on the property ladder while living in a suburb that meets your needs and wants.

“At some point in the future, you might be able to use the equity from your investment property to buy the house you always wanted in Sydney or Melbourne,” he explained.

To filter the list, researchers picked out suburbs where there is downward pressure on weekly rents and house prices for locations identified as “better to rent than buy”.

The process was done using these data points:

• Vacancy rates are above 1.5 per cent (for both the suburb and the SA3 in which it’s located)
• Yields are below 4 per cent
• Over the previous 10 years, median prices for units have grown at less than half the rate of houses

Furthermore, many more apartments are likely to be built in these areas in the coming years, putting further downward pressure on rentals and prices.

For suburbs identified as “locations to consider buying a house”, researchers focused on these data points:

• Yields are above 3.5 per cent
• Inventory levels are less than five months
• The SA3’s median house price has grown by an average of at least 5 per cent per annum over the past 10 years

Additionally, in the coming years, it is unlikely that a considerable number of new residences will be developed in these suburbs. Therefore, increased demand would result from a lack of supply, putting increasing pressure on rents and prices.

Finally, when comparing unit markets where it is preferable to rent against house markets where it may be better to buy, researchers looked at the unit markets that have double the inventory as the home markets.

When it comes to rentvesting, Mr Spencer concluded with a reminder to home buyers to act prudently since the decision of where to live and buy is both an emotional and financial decision.

“So first home buyers should weigh up both those factors when deciding whether to follow the traditional owner-occupier path or choose the increasingly popular rentvesting option,” he concluded.

Here are the results of the study listing the top 30 suburbs where investors can rent in the city and buy a house in a high-growth area grouped according to price points:

$500k to $600k budget

10 NSW and Victoria suburbs where it’s better to rent a unit than buy a house

10 suburbs where houses are in the same price range as NSW and Victoria units for rentvesting

NOTE: *When a suburb has a vacancy rate of 0 per cent, that doesn’t mean the suburb literally has no vacant rental properties. Rental properties are regarded as “officially” vacant when they’ve been on the market for 21 days or more. When a suburb has a vacancy rate of 0 per cent, it means all rental properties are being filled in less than 21 days of being listed for rent.

$600k to $700k budget

10 NSW and Victoria suburbs where it’s better to rent a unit than buy a house

10 suburbs where houses are in the same price range as NSW and Victoria units for rentvesting

NOTE: *When a suburb has a vacancy rate of 0 per cent, that doesn’t mean the suburb literally has no vacant rental properties. Rental properties are regarded as “officially” vacant when they’ve been on the market for 21 days or more. When a suburb has a vacancy rate of 0 per cent, it means all rental properties are being filled in less than 21 days of being listed for rent.

$700k to $800k budget

6 NSW and Victoria suburbs where it’s better to rent a unit than buy a house

10 suburbs where houses are in the same price range as NSW and Victoria units for rentvesting

NOTE: *When a suburb has a vacancy rate of 0 per cent, that doesn’t mean the suburb literally has no vacant rental properties. Rental properties are regarded as “officially” vacant when they’ve been on the market for 21 days or more. When a suburb has a vacancy rate of 0 per cent, it means all rental properties are being filled in less than 21 days of being listed for rent.