How Rentvesting Gets You Into the Property Investing Game Quicker
Rentvesting is an increasingly popular investment strategy deployed by Australians, but it’s the younger generation in particular who find this approach an excellent match for their lifestyle.
With rentvesting, you can start growing your property portfolio as soon as you can by buying an investment property to rent out while you wait for the perfect time to buy your forever home.
If you have saved up a decent sum of money towards a deposit but nowhere near enough to buy your dream home – why wait? Keep reading to know how rentvesting can help you achieve your goals.
Why People Choose To Enter the Property Market Through Rentvesting
Rentvesting is a strategy where property owners don’t live in the house they’ve just purchased. They live elsewhere in a rental property that generally has a lower rental cost. That way, by renting out the house they just bought they’re generating a rental income to cover the mortgage repayments (or as much as it can).
So, through rentvesting, you can buy an investment property and enter the property market with the first property you purchase. You still have the flexibility to rent and live anywhere you’d like, while starting your journey of wealth building.
When it comes to buying investment properties, there’s no right or wrong way of doing things. Instead, every person has their own personal circumstances and goals for their financial future.
Most people sport the same end goal: growing their property portfolio and climbing up the property ladder. The investment strategy you choose to reach that goal is dependent on a variety of factors, including your current financial situation and future financial goals.
Many young Australians aim to buy their family home in popular areas such as Melbourne or Sydney. But, because of the demand in these areas, value for money is lower and its property prices are much higher.
With rentvesting, you can live where you want, even in Melbourne or Sydney, and rent a house or apartment to live in temporarily – and simultaneously buy a rental property somewhere more cost-effective to rent out.
People often choose rentvesting and take out a home loan to buy an investment property to rent out and live elsewhere because:
- they work in a city where it’s too expensive for them to buy right now, but they still want to buy property,
- they can afford a small apartment, not a family home, and want to invest now to start generating an income,
- Purchase in other states where the cost of entry is lower.
- they want the freedom to sign a short lease and be able to move around or travel without being tied down to one place, or
- they can use their rental yield to pay their own rent.
How To Buy Your First Investment Property Through Rentvesting
Buying your first home can be very daunting. At face value, you might even think you won’t be able to afford a home loan and the costs involved.
Choosing a rentvesting property investment strategy can help you enter the property market sooner than you might have expected. You don’t need to buy a big, expensive house. You can choose to buy something more modest, with a smaller deposit that you can afford.
Save as Much Deposit as Possible
If you can take out a home loan to purchase property and have a 20% deposit on hand, you won’t have to pay lenders mortgage insurance (LMI.) Having your LMI waived can save you a substantial amount of money.
If not, you can still take out a home loan for rentvesting and buy an investment property with a lower deposit. It just means your monthly mortgage repayments will be higher as they include LMI.
Lenders generally require between at least 10% for an investment home loan deposit. Employing the services of a mortgage broker can help you negotiate the best deal for your financial circumstances.
Ask Your Parents
Many young people can’t quite afford to take out a home loan and buy property on their own. It’s more common than you think for parents to chip in. Some parents who are in a position to do so gift their kids money towards their deposit.
Parents who own property often agree to a family pledge loan where they use the equity in their home as insurance so that their child doesn’t have to pay LMI. So, if they can pledge the full 20% deposit, you don’t need to put any deposit down at all: you just pay back the equity.
How a Mortgage Broker Can Help You Climb up the Property Ladder Through Rentvesting
Once you have established your deposit, the next step is to research what investment property to buy and where.
This is where a mortgage broker’s knowledge and experience comes in handy. At the Mortgage Agency, our brokers have great relationships with both real estate agents and lenders.
This is extremely valuable to help you find the rentvesting property purchase price perfect to your budget and negotiate your home loan’s best interest repayments.
Our brokers make use of a very specific rentvesting strategy when helping you choose the right property to begin your property portfolio. The following questions are crucial for rentvesting:
- Does the property have growth potential?
- Does the property have low vacancy rates?
- Does the property have the potential to yield a good rental income?
If you buy in an area with the potential to increase in value in the future, you could see positive cash flow. A positive cash flow property has tax benefits as it generates more income after-tax than what it costs to own. Property investors should contact the Australian Tax Office regarding tax benefits.
Buying a more affordable property when rentvesting means that you can enter the investment property market sooner than you might have thought. The downside of a smaller investment property is a smaller rental income towards your mortgage repayments.
Rentvesting for long term wealth building means once you’ve secured your first investment property, it’s time to start looking for your next property to grow your property portfolio.
Even if you have only saved up a small amount towards a deposit, you can secure your first property investment much sooner than anticipated if you do so through rentvesting.
Granted, with rentvesting your property purchase might not be in the area that you initially thought, or the size you would have preferred – but the beauty of rentvesting is that you never have to live in it if you don’t want to. You can just continue using your property investment to generate rental income.
Rentvesting is an investment strategy that can be used from a young age to build up a good credit score, see good capital growth, and aid you in buying your dream home to settle down in, in future.
So, rentvesting is the best of both worlds: you can live and rent wherever you want while still being a property owner.
Like with any investment strategy, before going ahead with rentvesting it’s vital to seek professional financial advice and tax advice.
At the Mortgage Agency, we don’t believe in impersonal transactions. Instead, we aim to build long term relationships with customers and help them grow and flourish on their property journey.
Our expert mortgage brokers can’t wait to get you started rentvesting. Contact us today to set up your personalised, tailored rentvesting investment strategy with a mortgage broker.
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.