Is 'rentvesting' the property strategy more young Aussies should know?

So, you're renting by the coast or in the inner city, and you love the lifestyle. Naturally, one day, you wonder what it would take to buy a property here.

A quick glance in your local real estate agent's window tells you all you need to know: you could give up matcha lattes for the rest of your life and still never have enough for a deposit.

If you're determined to get a foot on the property ladder, but can't afford to buy in your dream suburb, you have a couple of options: buy in a more affordable area and move there. Or become a rentvestor.

Rentvesting – buying an investment property in an area you can afford, while continuing to rent where you actually want to live – is appealing to more people amid higher property prices, says mortgage broker Nick Lissikatos, the director of Trelos Finance.

"We're definitely seeing more clients explore rentvesting, particularly in Sydney, where buying in your ideal suburb can be unrealistic as a first step," Lissikatos says. "It has gone from being a niche strategy to a much more common conversation over the past few years."

Rentvesting may sound like a way to get the best of both worlds: a piece of Australia's property pie plus continued proximity to your favourite beach. But there's plenty to consider before you take the plunge.

Firstly, keep in mind that eligibility for first home buyer incentives and government schemes (including the federal Home Guarantee Scheme) generally depends on your circumstances and whether you will live in the property (owner-occupier requirements often apply). Check the current rules and get independent advice if you're considering relying on any scheme.

Rentvestors may need to make a few mental adjustments, too, Lissikatos says.

"One of the biggest barriers is letting go of the idea that your first property has to be your dream home. A lot of buyers grow up thinking buying a home means living in it, so rentvesting can feel like they are doing it the wrong way, even when it makes more financial sense [for some buyers]."

Do your rentvestor research

Rentvestors really need to crunch the numbers. The strategy has pros and cons, notes landlord insurance specialist Terri Scheer, and paying high rent to live in a desirable location while also paying down a mortgage on a property in a cheaper area with lower rental returns may not be financially viable for some buyers.

Not planning for cash flow is a common rentvestor rookie error, Lissikatos says. "Some buyers focus so much on getting into the market that they underestimate the costs of owning an investment property."

Like all property investors, rentvestors should also take a cold, hard look at a property's long-term investment potential, Lissikatos says.

"Just because a property is cheaper does not automatically make it a good rentvesting option. The fundamentals still matter: things like location, rental demand, vacancy rates and future growth."

They also need to manage risk. "Rentvestors [should] run their numbers conservatively, and build in a buffer for vacancies, maintenance, rate rises and unexpected costs rather than relying on everything going to plan," Lissikatos says.

From there, it comes down to having the right systems in place. Depending on your situation, that may include engaging a property manager, conducting appropriate tenant selection, considering suitable insurance cover, and staying on top of maintenance to help manage investment risks.

"Speak with your accountant before you buy so you know the strategy works from both a cashflow and tax perspective," he adds.

Consider obtaining independent financial, legal and tax advice tailored to your property needs and goals.

Terri Scheer is Australia's leading landlord insurance specialist. For more information, visit www.terrischeer.com.au.

General information only.

This information does not take into account your objectives, financial situation or needs. Consider whether it is appropriate for you and seek independent advice before making any decisions.

Insurance is issued by AAI Limited ABN 48 005 297 807, trading as Terri Scheer. Before buying insurance, read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) available at www.terrischeer.com.au.