According to the 2019 Annual Demographia International Housing Affordability Survey, Australia’s major housing markets have been recognised as severely unaffordable, with a substantial margin in Sydney and Melbourne. Residents in these areas have reported it can be incredibly difficult to get on to the first step of the property ladder. That’s why it may be necessary to use an alternative method to get a leg up – like rentvesting.
What exactly is rentvesting?
In summary, rentvesting is when you purchase a property as an investment while living in a rental property yourself. It may not work for everyone, but for those residing in highly unaffordable areas, such as Sydney and Melbourne; it could be a feasible way to progress.
Is rentvesting a good idea?
Rentvestment is about securing your financial future, without sacrificing your lifestyle. Because paying rent is relatively affordable (usually), rentvesting allows you to live where you want, instead of moving to an area of your city where you can afford to purchase a property.
In the meantime, you’ll have purchased an investment property somewhere, usually cheaper. This will potentially be increasing in value, while your tenants will gradually be paying off your mortgage, increasing your equity. This equity can be utilised later, as bank security to buy a home in your preferred area, or to purchase another investment.
How should I assess a rentvestment before I buy?
Rentvestment can be a clever financial decision, but it may require a lot of work and it’s by no means a get-rich-quick plan. Listed below is what you should look for when searching for your rentvestment:
- Cash flow neutral: look for properties that have a high rental return
- Affordability: only buy in an area that you can comfortably afford – never stretch your finances
- Capital gains: purchase in an area that’s expected to increase in value
- Low maintenance: purchase something that requires little to no repairs or maintenance
However, assessing a home’s return is more complex than comparing its rental income to your mortgage repayments. When doing your sums, make sure you take into account expenses such as landlord insurance, repairs and maintenance, council rates, property management fees and the costs of vacancies.
Rentvesting isn’t for everyone. You should look closely at your circumstances and property prices in the area you live before executing any decisions. If you decide it’s the way forward for you, get as much professional help as possible and speak to a well-informed real estate agent (psst, we know some excellent agents) to make sure your purchase is the right one.