Investment tip: Rentvest to try before you buy

According to Mr Tarrant, his money might get one to two per cent interest if it's sitting in a savings account, but if he invests in a high-growth property, he could realise its increasing equity in one to four years’ time.

He said: “That's cool if you've got the capacity to save, that's great, but … your money is not really working hard for you if you got it packed in a bank account.”

“I've got [my money] working for me in property, so at a point in time, I'll draw down on that equity and that is what I would use to be my savings … [for a] property to buy for the family,” the property investor added.

Rentvesting can also be a way to “try” a property before buying it, Mr Glossop suggested.

Location plays a big role in an investment’s growth, he said, so much so that he prioritises research on areas and suburbs before he crunches the numbers to determine the asset’s wealth-creation potential. Unfortunately, location is also one of the few factors that you can’t change about a real estate asset.

As a buyer’s agent and a property investor, Mr Glossop believes that an investment property must be surrounded by significant infrastructure.

According to him: “Renting, for me, is a big try before you buy. It’s perfect to try before you buy, not just for the property but [also for] its location. What's important to you is the schools … transport, [and its] proximity to work. All of those things come into play.”

Crunching the numbers: Sydney case study

Sydney and other capital cities are some of the most popular areas for property investment.

According to Mr Glossop, house prices in Sydney range around $2 million dollars nowadays. Considering the current cycle, its market is expected to go sideways for the next three to five years.

If you choose to purchase a $2 million house in the Eastern suburbs as a family home, you’re putting yourself in debt for a property that is unlikely to go up in value in the long term. On the other hand, if you choose to buy an equivalent asset in the same area as an investment and rent it out, you can potentially enjoy up to 3 per cent growth rate annually.

Mr Glossop explained that if you put $2 million in an investment property, that would approximately be about $60,000 a year in rent if you are working off 3 per cent growth rate.

“If your property has gone sideways and you've bought it and you're paying 4.5 per cent on a [principal] and interest loan, that's about $90,000 a year [of costs for] you to hold a property that doesn't go up in value,” he added.

The $30,000-difference in his example can be used to add to your budget for rent or to the deposit of another investment property, the buyer’s agent said. Getting a big loan for an owner-occupied property at the beginning of your investment journey will most likely deter your capability to grow your portfolio.

It will be particularly challenging to get finance in the next three to five years when investing in Sydney, Mr Glossop said, unless you can find a way to acquire a significant amount of savings in a short time. Otherwise, you might end up as part of the statistics of 82 per cent of people who only ever own one investment property.

The buyer's agent said: “If your intention over the long-term is to build an investment property portfolio [and] you're going to hitch your cart to a big loan for an owner-occupied [property] here and now, good luck trying to get additional cash in the... years to invest.”

Long-term planning

Mr Glossop encouraged budding investors to have a clear long-term plan for accessing money so they can keep growing their portfolio.

Moreover, the utility of your money is also an important factor to consider when investing, Mr Tarrant highlighted.

According to Mr Glossop: “[You have to] pragmatically think about how you're going to access money to keep building your portfolio.”

Budding investors are often insecure about renting, especially if they are building a family, but Mr Glossop reminds everyone that there will always be houses for rent and multiple ways to negotiate a good lease with landlords. In the same way, there will also be no shortage of markets moving in the right direction.

At the end of the day, Mr Glossop and Mr Tarrant believe that it’s a matter of finding where and how your money will work the hardest for you. Sydney may be going flat or sideways for the next couple of years, but other markets will continue to move progressively.

“I can get my money working in other markets and come back to the Sydney market when the time is right,”  Mr Glossop said.

“I think your money could work realistically harder as long as you put that money to work in different markets at [their] surge.” 

Tune in to Paul Glossop’s Q&A episode on The Smart Property Investment Show to know more about the opportunities in “rentvesting” as well as the answers to some of the most frequently asked investment questions.