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First home buyers could turn to rentvesting in Sydney and Melbourne

New research commissioned by Well Home Loans found that first home buyers in Sydney and Melbourne might be better off renting units in desirable suburbs and buying high-growth investment houses in regional areas or interstate.

Well Home Loans Chief Executive Officer Scott Spencer said first home buyers are often faced with the difficult decision of buying where they can afford, which often leads them to outer suburbs.

“I feel for first home buyers in Sydney and Melbourne, because it’s really hard to buy a house close to the CBD,” Mr Spencer said.

“That means 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.”

For many new buyers, renting where they want to live and investing in a location with good growth potential is becoming more common.

Mr Spencer said first home buyers in the NSW suburbs of Wentworthville or Auburn could be better off renting at $400-$420 per week, than buying, especially if their budget was between $500,000 and $600,000.

Similarly, across Victoria, there are a number of suburbs more viable as rental options including Box Hill, Doncaster and North Melbourne.

The report noted these locations faced downward pressure on weekly rents and property prices, while seeing high vacancy rates, low yields and weak growth relative to houses.

Mr Spencer suggested first home buyers instead consider interstate locations such as Darling Downs in WA, Nambour in QLD or Sorell, Mornington and Oakdowns in Tasmania, which all have strong growth potential at a comparable price point.

First home buyers with a budget of $600,000 to $700,000 should look at suburbs including Toongabbie, Canterbury and Hurstville in NSW or West Melbourne, Moonee Ponds and Williamstown might be better served looking at Coombabah, Meridan Plains, Caloundra West or Lower Beechmont in QLD or Midway Point in Tasmania.

For a budget of $700,000 to $800,000, first home buyers might be better off renting in Ryde and Carlingford in NSW and Heidelberg, Malvern East, Clayton and Oakleigh in Victoria.

With more attractive investment options being Highland Park, Merrimac, Little Mountain, Forest Glen and Nerang in QLD.

Mr Spencer said in the future, rentvesting might allow first home buyers to use the equity from their investment property to buy the house they always wanted in Sydney or Melbourne.

“Rentvesting isn’t for everyone, because deciding where to live and buy is as much of an emotional decision as it is a financial one,” he said.

“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.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.