Rentvesting, the act of renting and owning an investment property, is proving popular for first home buyers, according to a property commentator. If you’re considering rentvesting, here’s what you need to know to get your foot in the door.
Property commentator Anna Porter, principal of Suburbanite, has found that current market conditions prove difficult for first home buyers entering the market normally, but rentvesting gives them the opportunity to enter the market at a lower price point.
“It is a great strategy for first home buyers looking to get into the market when they just don’t have the budget to buy their dream home,” Ms Porter said.
“So, they invest in more affordable markets and rent where they like to live while their investment is working for them to build up their deposit power.
“If purchasing your dream home lead to mortgage repayments $5,000 a month, but renting in the same area had rental repayments of $2,500 a month, you would be left with $2,500 per month to invest.”
Ms Porter also provided her own tips on how rentvestors can find success:
Before rentvestors can start investing, securing finance is the first step.
“Firstly, you must get access to a deposit (as you would if you were purchasing their dream home). The deposit can be obtained by savings or using your parent’s equity through parent pledge type structures,” she said.
“You’ll need 20 per cent of the purchase price, plus stamp duty. It’s best to speak with a broker about the options and exact figures for how much is needed.”
Next, Ms Porter suggested establishing a budget for the whole investment strategy, which can be done solo or with assistance of a buyer’s agent, while focusing on businesses that do not get a kickback or focus on off-the-plan purchases.
As with any investment, rentvestors then need to consider the location of where they intend to invest.
“The best thing to look out for here is a market positioned for good growth in the first three-five years so you can build deposit power,” she said.
“Look for areas driven by infrastructure, rental demand, employment and population growth.”
She also stressed to avoid new and off-the-plan properties due to having lending risks, slower relative growth projections and are vulnerable to oversupply.
After the investment property is purchased, Ms Porter said that rentvestors need to bide their time.
“It’s important to be patient while the value of the property increases with the market and remember to pay down as much extra off the loan as you can so you can build your equity even faster,” she said.
“Don’t be tempted to sell the property too soon, 12 months is not long enough to build equity in the property market and you typically need to work on a three to five-year strategy.
“Once you have a good amount of equity, you can sell it to cash out or leverage it to buy your own home.”
She claimed that some rentvestors have done this two to three times before cashing out to buy their own home.