The Evolving Cost of Rentvesting: How 2024 Challenges the Popular Property Investment Strategy

Reinvesting, once a popular strategy for first-time buyers to build wealth, faces new challenges today. This approach involves renting where you want to live while buying an investment property elsewhere, aiming to use the capital gains for a future home purchase.

Let’s compare the costs of reintvesting in 2019 versus 2024. In 2019, Sarah could afford to rent an inner-city Sydney apartment for $890 per week and still have about $1,200 weekly for living expenses. With her savings, she could buy an investment property in Newcastle, with her rental income and expenses leaving her around $900 per week for other costs. If she moved to Newcastle, her budget would be $1,200 per week.

Today, with Sydney rents rising to $1,150 per week, Sarah’s weekly budget would drop to $1,100. If she bought a Newcastle property for $1,042,500 and rented it out, her weekly budget would fall to $450. Moving to Newcastle would leave her with about $650 weekly for living expenses.

These changes mean reinvesting now costs about $24,000 more annually, and buying a home to live in costs an additional $31,000. Adjusting for inflation, the extra costs are approximately $6,500 and $12,000 respectively.

Given higher rents and interest rates, Sarah might need to reconsider her strategy, possibly sharing an apartment or moving into the Newcastle property. Also, capital gains tax could reduce the profits from selling the investment property.

With current economic conditions and no imminent rate cuts from the RBA, those considering reinvesting should carefully evaluate their financial situation and goals before making a decision.

Consult with a financial advisor before exploring your options.