Revealed: Most affordable options for rentvestors with $600,000 budget

First-home buyers who are looking to buy a home with a limited budget should consider rentvesting as their route to breaking into the housing market.

Well Money CEO Scott Spencer said conditions remain tough for many buyers, making it more ideal for first timers to continue renting in the inner- and middle-ring markets of Australia’s capital cities while at the same time invest in places where there is potential for growth.

“First home buyers who live in capital cities and have a budget of $500,000 to $800,000 have a tough choice to make — they can buy a unit in the inner or middle rings, which would give them a convenient location but maybe not the amount of space they want," he said.

“Alternatively, they can buy a house in the outer rings, which would give them lots of space but might leave them with a long commute to the city every day.”

Mr Spencer said rentvesting provides a great choice for many buyers whose budget can only buy a $500,000 to $600,000 home.

“In the future, if the investment property grows in value, they could potentially sell it and use the money to buy an owner-occupied house in a desirable suburb in their current city — that said, it would be important to take a long-term view with any investment purchase,” he said.

Where should rentvestors buy?

Well Money listed 10 suburbs where rentvestors with a budget of up $600,000 can buy and expect long-term growth.

These suburbs are experiencing upwards pressure on weekly rents and property prices, as reflected in the following statistics:

• Vacancy rates are below 1.5%. When a suburb has a vacancy rate of 0, it means rental listings are filled in less than 21 days.
• Yields are above 3.5%, which is relatively healthy on an investor’s perspective.
• Inventory levels in these suburbs are less than three months. Inventory levels pertain to the amount of time it would take to sell all homes in a particular location if they kept selling at the current state and no supply is added.
• The SA3s of these suburbs were able to record a median price growth of 5% per annum over the last five years.

According to Well Money, it is unlikely that a substantial number of new homes would be built in these suburbs in the coming years, which would bode well for the upside of price and rental growth due to high demand outstripping supply.

Where should rentvestors rent?

For rentvestors who are looking for a place to live near the capital cities, particularly in New South Wales, Victoria, and Queensland, the best options are unit market in these suburbs:

While unit prices in these suburbs fit the $600,000 budget, it is still better to rent in these locations due to the downwards pressure being placed on weekly rents and property values, making them not profitable in the long run.

Vacancy rates are all above 1.5% while yields are below 5% in these areas. Meanwhile, median prices for units in these locations grew at less than half the rate of houses over the 10 years to 2019.

Furthermore, there is a high likelihood that more units will be built in these locations in the coming years, which would only dampen any potential growth in value and rents as supply overwhelms demand.

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Photo by Tourism Australia on Canva.