It’s no secret it’s getting harder to own a home, but could rentvesting hold the key to cracking the market?
Rentvesting could be the answer for budding buyers struggling to break into the market, experts say.
The strategy involves getting on the property ladder by buying an investment where you don’t necessarily want to live but can afford, while continuing to rent in your desired area.
It particularly gives young people the opportunity to achieve their dream of becoming a homeowner without having to sacrifice their lifestyle. But rentvesting has pros for a range of buyers, pundits say.
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WHY RENTVEST?
As prices surge and housing affordability continues to be a major issue, Propertyology head of research Simon Pressley recommends rentvesting as a “fantastic stepping stone to help get people where they want to be”.
Mr Pressley said rentvesting was appealing for those who were priced out of their local or preferred suburbs – particularly in Melbourne and Sydney’s soaring housing markets.
“In general, the more property prices rise, the harder it will be for someone to buy their idyllic principal place of residence,” he said.
“But it doesn’t mean they can’t buy a property at all. In fact, there are a lot of Australians who can afford to buy property, but they just haven’t thought of buying like this before.”
Rather than waiting years to buy with a larger deposit, rentvesting lets people find a property that suits their budget or existing savings.
And this first purchase could later serve as much-needed leverage to get them closer to affording their dream home one day. “It’s a very viable option to get into the market sooner rather than later,” Mr Pressley added.
Buyer’s advocate Emily Wallace said rentvestors who jumped into the market now could also take advantage of the record-low interest rates.
Propertyology head of research Simon Pressley said many Aussies could own a home if they were able to rethink their dream of living in their purchase.
YOUR MONEY WORKS FOR YOU
A serious pro for rentvestors was the fact their “money will be growing at a much faster rate
in a property than sitting in the bank”, Mr Pressley said.
He said buyers were often scared buying real estate meant going into debt. But finding the right investment with a strong rental income could cover “100 per cent” of the costs involved, including paying your mortgage.
Ms Wallace said rentvesting challenged the age-old saying that “rent money is dead money”.
“Rent money is not dead money when you have your money elsewhere working for you,” she said.
Rentvesting also gave tenants on a budget access to lifestyle locations that they could not afford to live in otherwise. Ms Wallace said this was an appealing compromise for many Millennials and first-home buyers who were turned off relocating to affordable outer areas, in favour of staying close to friends, relatives, jobs, and their favourite restaurants and night-life.
Nicole Haddow bought in Mordialloc but rents in Richmond with a friend, closer to her friends and work, and enjoys the lifestyle she wants. Picture: Sarah Matray
BROADEN YOUR HORIZONS
Rentvestors are not limited to their area, or even their state, in order to buy a home.
“It means you can really buy a property anywhere in Australia,” Mr Pressley said.
“You need to see it as a financial instrument, which means it’s not about the bricks and mortar, how many bedrooms it has, or if you like the city and how the weather is.”
Ms Wallace agreed this opened up buying opportunities immensely.
“It’s a non-emotional purchase and with that comes the straight figures, as opposed to worrying about if you can see yourself living in it,” she said.
The price of a two-bedroom apartment in a popular inner-Melbourne area could become a four-bedroom house when buyers extended their search to the regions.
Buyer’s advocate Emily Wallace said rentvesting was popular among younger buyers.
WHO SHOULD RENTVEST?
While the pathway was ideal for young buyers or anyone who “can’t afford to buy their dream home in their chosen city”, Mr Pressley said other demographics could be drawn to rentvesting for different reasons.
“There are plenty of people who aren’t ready to anchor themselves to a particular dwelling, especially once international borders open,” he said. “If people want to travel and don’t know where they want to live long term, this gives them the flexibility they need.”
Even career-driven buyers who can afford the perfect property might prefer rentvesting to keep themselves open for jobs in other states or overseas. It was also an opportunity for empty nesters to build their savings if they couldn’t afford to retire just yet.
“Some people in that age bracket will sell the big family home and turn that equity into a big bundle of cash,” Mr Pressley said. They could then find a rental to live in, and use the funds to buy three or four investment properties in strategically different locations to bolster their income, and later fund their retirement.
“It’s putting their family home to much better use, so in 10 years’ time, they’ve had multiple properties working for them,” Mr Pressley said.
Investing means buyers can broaden their searches to find something that fits the budget.
ASPECTS TO CONSIDER
Ms Wallace said rentvestors needed to remember owning an investment property came with the responsibility of becoming a landlord, in addition to being a tenant yourself.
“You do need to consider the costs (of repairs and maintenance) if it’s an older property, or what you will do if your tenants leave or are misusing the space,” she said. She recommended finding a property manager you could trust to help take care of any issues that arose.
David Nguyen rents an apartment in Docklands and has just bought two units in Sunbury as investments, instead of buying his own house on the fringe of Melbourne. Picture: Tim Carrafa
RENTVESTING TIPS
When searching for a property, do your research with finding a tenant in mind. Look into growth areas with general amenities like schools, public transport and essentials
Aim to buy in an area that isn’t already overflowing with investment properties to limit your levels of competition for tenants
Disregard where you live and your opinion on the property. This purchase is about finding the ideal investment
Plan to break even. Crunch the numbers to see if a property’s rental return will cover the mortgage repayments
Focus on finding a low-maintenance, freestanding house for maximum capital growth, or if you can’t afford that, a unit with some land. Land appreciates and buildings depreciate
If you currently live in a property you own, consider the fact it may be difficult to transition to being a tenant
Account for additional costs of maintaining a home and the responsibility of being a landlord.
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The post Why rentvesting is a smart move to break into property market appeared first on realestate.com.au.
Young buyers and those battling ever-rising prices should consider this clever move to get in without compromising on their lifestyle.
The post Why rentvesting is a smart move to break into property market appeared first on realestate.com.au.