How you can live where you want – and get a foot into the property market?
Is it better to rent and buy an investment property?
Today you’ll learn how the rentvesting strategy works, the myth that may be holding many prospective investors back, and what one bank thinks about rentvesting.
What is ‘Rentvesting’?
Rentvesting: The strategy of renting where you want to live and buying an investment property (or properties) in areas you can afford.
It has become increasingly harder for Australians to purchase their first home, particularly in areas that they would ideally like to live.
Most people enjoy convenience – and that means living close to work, friends and family, shopping choices, entertainment and lifestyle amenities.
But this normally comes at a price…a price that is quite often out of reach to those starting out.
As a result, rentvesting has become a popular strategy.
Get ahead while living where you want to live
People are realising that it can be more affordable to live where you want to live (obviously within budget) if you rent a property, rather than buy it.
Then, if you can fund an investment property, you can look for the best options within your price range.
Rentvesting allows you to get on the property ladder without compromising your living arrangements.
Your ideal home may not be the ideal investment
Another valuable benefit of rentvesting is that you can select the investment properties based on their investment credentials rather than your personal requirements (successful property investing comes down to facts and figures, rather than emotion and personal preference).
You may wish to live in an apartment in the city that has everything in walking distance but is that going to be the best investment?
Most likely not.
In general, apartments don’t normally see big capital growth, particularly if there is a large supply in the area. There may also be high body corporate fees to pay for the indoor pool, gymnasium and lifts.
This is great for those living there – but how does it affect the financial bottom line?
Myth: You lose home owner benefits if you rentvest
One common misconception is that if you purchase an investment property as your first property, you aren’t eligible to recieve the government’s first home-owner benefits.
As it stands, you could have 5 investment properties before owning your first home (ie. the first property you live in). And still be entitled to any first home-owner benefits offered by the state government.
Some people think this is unfair. My argument is that these investment properties are just that…‘investments’.
If you invest in gold, silver or bonds, should you be entitled to the first home-owner’s benefits?
Not only do property investors take risks in the pursuit of being financially self-sustainable, they are providing housing for those who need it.
I am not against people investing in precious metals but I don’t think it has the same social consciousness as providing roofs over heads.
How easy is it to get finance to rentvest?
The government has been trying to slow the rate of property price growth. APRA has introduced measures to banks around lending policy and loan book growth for investment lending.
This has made things very tough for some people, who in the past, would have been able to get finance quite easily and then discriminates those who can, through higher interest rates.
Rentvesting finally recognised by banks
I was very pleased to see that one major Australian lender is not only recognising, but rewarding those who are rentvesting for the first time – by cutting rates for rentvestors.
Andy Wright, Westpac head of portfolio management for home ownership told Fairfax Media:
“These changes are designed to help first time buyers at the start of their home ownership journey and a cut in fees means they can put their savings towards purchases for their new home.”
“This offer also extends to ‘rentvestor‘ first-home buyers who are looking to purchase their first property to rent out. We’re seeing this trend increase, with many first-home buyers purchasing properties to rent in more affordable areas while choosing to live in close proximity to the city.”
We have come across many smart people that are rentvesting.
They plan to build a portfolio of good investment properties whilst maximising the financial benefits. So when the time is right, they will be in a position to buy their dream home.
They will also have the luxury of buying that home in a buyer’s market, not a seller’s market.
Remember every market has cycles.
Are you wondering if rentvesting is right for you? Give me a yell and we’ll find out together.