Federal budget forces ‘rentvestors’ to question their entire property investment strategy

Federal budget reforms have left a generation of young ‘rentvestors’ scrambling to reassess their property strategies as negative gearing rules threaten their investment model.

Like many young Australians locked out of buying where they actually wanted to live, John Bell Jr and his wife took a different route into the real estate market.

“We wanted to get ahead financially in Australia,” said Mr Bell Jr, based in Logan in southeast Queensland.

“I’d invested in shares before, but property felt like the best avenue for long-term growth.”

The couple believed they were doing exactly what young Australians were told to do to get ahead — invest early, think long term, and use property to build wealth.

While living with family in Sydney, they chose not to buy an owner-occupied home first. Instead, they focused on investment properties in locations where the numbers stacked up.

“We looked at property as a vehicle to build wealth first,” John said.

“The plan was always that eventually we’d either move into one, or sell and buy our dream home later.”

Their first purchase was in Pacific Pines on the Gold Coast.

Their second came later in Geelong, Victoria.

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They now live in Logan, but John said they have never physically seen either investment property in person.

That level of confidence came from working in real estate as a property manager at Ray White Beenleigh, where he developed a strong understanding of rental demand, yields and investor behaviour.

“We focused heavily on returns,” he said.

“My wife and I only really needed to rent a one or two-bedroom place ourselves, so we bought larger properties because they generated better rental income.”

The couple also structured their purchases through a trust, a strategy used by investors seeking flexibility and long-term tax planning.

After the Federal Government’s sweeping budget changes targeting property investors, the couple are deciding what comes next.

Last week’s federal budget dramatically shifted the landscape for investors like them.

The Albanese Government announced major reforms to negative gearing, capital gains tax and discretionary trusts — changes aimed at improving housing affordability and helping more first-home buyers enter the market.

For investors like Mr Bell Jr, the changes have triggered an immediate rethink.

The changes around new builds being allowed negative gearing would also not help young aspirational ‘rentvestors’ like Mr Bell Jr.

“In my line of work, I hear scary stories about people buying new builds, waiting for them to be completed and at the mercy of builders and developers,” he said.

“No rental income is coming in for months or year.

“The construction costs are so high; it just doesn’t work unless you are worth millions and earning crazy high salaries.”

“The established homes are generating good incomes for people; but when you are building hundreds of apartments in the same building, that reduces.”

“We looked into buying off the plan on the Gold Coast, but the problem was that we could see so many one bedroom apartments on the market — the asset just wouldn’t be growing like an established home.”

“In Sydney it would have been almost impossible for us to buy a new build.”

The budget changes are expected to hit younger hopeful ‘rentvestors’ particularly hard, Australians who rent where they want to live while investing in more affordable markets elsewhere.

Economists and property experts say the reforms could significantly alter the viability of that strategy.

“We’re now talking to accountants and financial advisers about what the best next steps are,” he said.

“Because we bought through a trust structure, we really need to understand how these changes will affect us long term.”

The couple are now reconsidering whether buying another investment property still makes sense, or whether it is finally time to buy a principal place of residence instead.

“We’re asking ourselves whether our next purchase should actually be a home to live in,” he said.

“And whether buying in our personal names rather than through a trust might be a simpler strategy going forward.”

“We’ve always been flexible about where we buy,” he said.

“It was never emotional for us, it was about the investment performance.”