July 05, 2016
The current surge in property prices seems to be tainting the Australian dream of living in and owning your own home, particularly across Australia’s capital cities.
This is where the new trend of rentvesting could help you get a foot hold in the property market.
Typically a rentvestor is a first home buyer that chooses to rent in the area they want to live, but can’t afford to buy, and buys an investment property in a more affordable area.
According to Mortgage Choice’s 2015 Investor Survey, 36.6 percent of Australian Investors were first home buyers or rentvestors, this is a significant increase from the 21.2 per cent ratio recorded by the Investor Survey in 2014.
As with any other strategy there are Pros and Cons with the rentvesting strategy, we have compiled a few key pros and cons associated with the rentvesting strategy:
Live in the location you want- one of the first rentvesting pros that comes to mind is the ability to maintain the lifestyle you want (i.e. proximity to the beach, nighlife, closeness to work, etc) without compromise and at the same time become a home owner. If you enjoy the urban inner city neighbourhoods renting will, generally speaking, be cheaper than buying property because the capital growth for property usually outweighs the rental growth rate. Rentvesting allows you to live where you aspire to whilst building up equity elsewhere.
Additional income Potential- If the rent you receive your tenants is greater than your loan repayments on the investment property you’ll benefit from additional income. This additional income can be saved for a holiday, pay off student loans, on everyday living expenses or to fast track your mortgage repayments.
More flexibility- If you enjoy regular changes of your surrounding environment the flexibility and temporary nature of renting gives you more freedom to move around and experience different lifestyles, types of homes and neighbourhoods. This also means that if you need to relocate for your career you have more flexibility in choosing where you live and how long you stay there for.
Limited changes- whilst the ability to move around can be appealing, if you’re into home DIY to make a space your own living in a rental property will restrict you to the terms of the lease agreement and you will be unable to make significant changes to the décor and the house.
Renting is always temporary- the temporary nature of the rental agreements means you will have to come to terms with the fact that as a renter the home you live in doesn’t belong to you and your permanence there is only ever temporary. This can be challenging for some, particularly if you don’t particularly enjoy moving or you reached at a point in your life where you want to settle down and put down more permanent roots. Living on a year to year lease isn’t for everyone, so you will have to factor the hassle of having to move more frequently and the uncertainty of renting into your decision.
Miss out on the First Home Owner Grant (FHOG) - The FHOG is only available to owner occupier first home buyers who are buying or building a new home, which means first time investors miss out, however If a buyers’ first purchase is an investment property, they are still eligible to claim the FHOG on their first owner occupier purchase, regardless of the fact that it may be their overall second property purchase.
Limited freedom to make changes - If you’re into DIY and making a space your own it may not be ideal to live in rental properties for the long term where you’re restricted by the terms of a lease agreement and unable to make changes to the décor or the house itself.
Need help finding if rentvesting could be the strategy for you? Call us on 02 9526 788 for an obligation free consultation. Our experienced team members have several years experience buying investment property in Miranda and surrounding suburbs and would love to help you achieve your property dreams.