Should I buy a property to live in or to invest?


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Should I buy a property to live in or to invest?

Rentvesting: Should I buy a property to live in or to invest?

We get asked the question all the time: “Do you think I should buy a property to live in or to invest?”. In this article we cover the pros and cons of each option and we will show you the detailed Maths!

The new generation of ‘rentvestors’

In the old days, most families would own their family house, where they would live most of their lives. Nowadays however, 45% of people below 40 who buy property do not plan on living in it but buy it as an investment! This trend is observed in Australia and many developed countries and this new type of buyers is called ‘rentvestors’.

What should you do? What are the pros and cons and economics of each option?

Pros and cons of rentvesting

Deciding between ‘rentvesting’ and owning a home to live in can be a difficult decision. Here are a few things to consider:

Pros of rentvesting

  • Can invest in high yield / high capital gain areas which will build your wealth and help you achieve financial freedom
  • Usually less expensive, with property investments starting at $300,000
  • More flexible, as it doesn’t matter if you need to move to a different city – you can keep your investment property
  • Better quality of life, in case buying a property to live in means downgrading vs the property you currently rent

Cons of rentvesting

  • Miss on the emotional component of buying a property for your family
  • Only works if you invest in an area financially more attractive than the one you live in

Becoming a ‘rentvestor’ may be relevant for you if you…

  • Live in an area with low rental yield (which means it is relatively cheaper to rent than to own property)
  • Live in an area with low capital gain potential
  • Cannot afford to buy your dream property where you could live for many years (for example you can only afford to buy a 2-bedroom in your suburb but you will likely need a third bedroom in a few years)
  • You are an experienced investor knowing where and what to invest in (or get help by PropHero to invest!)

Becoming a ‘rentvestor’ may NOT be relevant for you if you…

  • Live in an area with high rental yield and high capital gain potential
  • Can afford to buy a property where you see yourself live for many years

The Maths

Let’s take the example of Sophie, who lives in Sydney and who is hesitating between buying a 2-Bedroom Unit for her family in Sydney ($1M) or buying 2 investment properties in a high potential area ($500,000 each).

Prices in Sydney have increased a lot until 2017, much faster than rent. This means that rental yields are low (only 2.9% in her suburb). Moreover, prices in many suburbs have barely increased since 2017 (only 2% per year, or $20,000 on a $1M property).

For the price of a 2-Bedroom unit in her suburb, Sophie could also buy two 3-Bedroom houses in a high growth area, where she could get nearly 5% rental yield ($24,000 rental income per $500K property per year) and where prices are increasing by 4% on average each year ($20,000 per property per year).

Sophie’s current rent is $560 per week ($29,000 per year).

Let’s compare Sophie’s options:

Comparison of scenarios: Buying a $1M unit in Sydney to live in vs buying two $500K investment properties
Comparison of scenarios: Buying a $1M unit in Sydney to live in vs buying two $500K investment properties

In this scenario, investing in two properties in high rental yield / high capital growth areas is more profitable for Sophie.

Moreover, she gets to enjoy staying in her current flat that she likes while building her wealth before potentially buying her dream property to live in in a few years.

It is important to note that this scenario only works if Sophie can find an area to invest that are financially attractive (high yield and high growth).

Thinking about investing in property? Contact us! Our team of property investment experts are here to help!

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