Let’s talk: What is rentvesting?
10 October 2017
When and where can I afford to buy? You’re certainly not alone if this is a question you’re grappling with given the surge in property market commentary, shift in property prices and sentiment surrounding housing affordability in our nation’s capital cities.
While the great Australian dream of owning a home is still very real for many, it is evolving and people are taking different home-buying pathways to get their foot through the property market door. This includes tactics like rentvesting.
Rentvesting is when an aspirational home owner purchases a property, within their budget, to lease out and rents a property where they would prefer to live. This is popular among people who work in the CBD but want to own a property in the suburbs.
While there are different views about renting as an investment strategy, rentvesting allows you to maintain the lifestyle you want now, while also starting your investment portfolio.
Of course, as with any financial decision, it’s important to look at all the facts and make a decision based on what works best for you. It’s always a good idea to discuss your financial profile with your financial institution or mortgage broker, to gain a further understanding of how much you can afford to borrow and repay.
One of the key things to consider is that if, for whatever reason, you stopped receiving regular rental payments for your investment property, could you afford to cover your loan repayments and rent?
And with the shift in interest rates for investor loans, it’s important to consider potential rate changes when working out what you can afford to buy. A 1 per cent interest rate rise, from 5 - 6 per cent, on a variable $300,000 investor loan, could cost nearly $100 per fortnight more in repayments.
Another thing to consider are the tax implications. While you may be able to claim interest payments on your loan as a tax deduction, you may also be liable to pay tax when you sell the property.
Make sure you research the suburbs you’re looking to buy in to get an understanding of what properties are available, the suburb median pricing and nearby facilities like schools, shopping centres and parks.
Speaker: Jessica Bartlett
I guess basically for us we really wanted to get into the housing market, we really wanted to get a house but we both are from the Gold Coast and didn’t want to do the commute to Brisbane – we both work in Brisbane.
It’s fun – it’s not any cheaper or more expensive in my opinion but there is just so much to do, you’re closer to work and I think you just get a little bit of a snippet of another lifestyle before you settle down somewhere else.
We’re missing out, we want to be in our house – we’re excited. We have this beautiful house that we want to live in and we’re not there yet, so for me that is definitely a con.
We definitely looked at how much our rent costs up here and what our repayments would have to be and we did have to give up a couple of nice houses because they just were out of our reach if we were to run out of renters.
I think first of all you need to really understand your own budget, what you can afford and what you are willing to go without to ensure that you always have that money aside should anything go wrong.
If you’re looking for a long-term tenant maybe look for areas that are near schools or areas where you are going to have those people are who are definitely going to be there for the long haul so you don’t have those periods of time in between renters.
Media Inquiries: Ashleigh Paterson 0407 925 665