The growing inflation has brought rent prices close to mortgage payments, giving an urge to real estate agents or aspiring investors to invest in property and escape the wallet-emptying cycle of paying monthly rent. Yet the same situation has made owning a home of four-by-two home unattainable for the average Australian who cannot save more than $200,000 in their lifetime.
Governmental schemes and parents’ funding are not accessible to many, due to which rentvesting is gaining attention because it allows a commoner to invest in property in a low-key area without affecting their livelihood. It is effective for first-time buyers who cannot buy in their dream locations.
What is Rentvesting, and how to buy investment property via it?
Rentvesting is a housing strategy in which a person invests in property at an affordable area while living at a rental place.
This strategy allows people to own a home in a few years without sacrificing anything while living in the preferred area.
While being a popular approach nowadays because of the housing crisis, rentvesting has pros and cons which you need to determine before making a decision.
Advantages of Rentvesting
Fastest way to buy an investment property
Preferring a reasonable location to get an investment property while continuing to rent an apartment in an urban area allows you to build a portfolio earlier and enter the real estate market sooner than you imagined.
Tax perks
Investing in property through rentvesting attracts tax benefits unless you won’t call it a home. If it’s shown as another place, you will be eligible for various tax deductions and can claim these expenses, according to the Australian Tax Office (ATO):
- Home insurance
- Maintenance fees
- Tenant advertising
- Water and council rates
- Agent fees and commission
- Interest on mortgage payment
- Wear and tear from natural causes
- Land taxes
By claiming these expenses, you can save a lot of money which you can use in investing in property that you want to own.
Expand portfolio of buying investment property
Rentvesting allows you to maximize your chances of potential growth, especially when you invest in properties that have a good reputation. It gives you room to invest in other income-generating properties and streams to diversify your portfolio.
Cons of Rentvesting
No grants when investing in property Australia
If you are rentvester, you won’t be eligible for first-buyer owner schemes and grants because these grants only favor people who want to buy a home, not investment property.
Financial burden
Rentvesting won’t free you from paying rent of where you live, which means it can affect your expenses and budget as you won’t be able to save a lot of money to deposit for investment property.
Maintenance and responsibilities’ baggage
Always remember, everything has a trail of consequences. Buying investment property will burden you with responsibilities that include tenant issues and maintenance expenses. Besides, you will need to ensure it is always rented and not remain vacant for a long time.
Unpredictable market
Political chaos, local crisis or miscellaneous things can affect the market value of the property in which you have invested in future, due to which you can either lose value or your property can bring more income to your home.
Higher risk and additional debt
While rentvesting, it is important to manage your finances carefully as you will be in debt because of mortgage payments for the investment property alongside rent to pay for the home you live in. In such situation, there are chances you won’t get loan as you will be in riskier situation than other applicants,
Key points of rentvesting to remember during property investing phase
Pros and cons are not enough to help you make a decision, you need to consider few other things before investing in property.
Capital growth
Before buying an investment property, it is essential to visit the area and determine if its value will decrease or heft up in long-term. In case of the recent ongoing housing crisis, it is obvious that you can gain profit from your property in the long run.
The growth of the property depends on the type and size of the property, and its location. A land-locked suburb is pricier because of strong demand than outer-suburbs because there is more land available in the latter.
To determine the growth, have a meeting with a buyer agent from Investor Partner Group or another real estate agency and share your queries with them. The experts’ opinions will help you make the right decision at the right time.
Rental return
For this, you need to conduct research and understand the rental prices of similar properties in that area. Based on that, you must calculate how much revenue you can generate by investing in property, also known as yield of the property. To calculate this, you have to divide the annual rent by the property cost . Suppose you get a property for $500,000 and you rent it out for $500 per week. Consequently, based on the formula, you will get $26,000 rent per year. Ultimately, the gross yield of your property would be 5.2% per year.
Risk assessment
Although property investment is less risky than other kinds of investments, you never know when you can lose your money because of it. Therefore, before making an investment in property, talk to a buyer’s agent and assess all risks involved. Some of them are:
No liquid investment: If you have invested in property, remember that you will not have a liquid asset, which means you won’t have access to cash in an emergency.
Dependency on market rates: Your mortgage payments change with market rates. In the current crisis, it is likely to go up, which means you need to have savings for repayments.
Uncertainties and losing money: There are chances of losing money if you need to sell the property during the down phase in chaotic situations.
Poor performance: The Market value of property does not always grow, due to which makes it risky to own a place.
To mitigate the risks, it is important to hire a property advisor. They will assess the situation and guide you on how to invest in property with minimum risk through rentvesting.
What you can do actively to mitigate risks by rentvesting to invest in property
Here are a few things you can do while taking help from an advisor to manage the risk when you are investing in property:
Diversify your portfolio: Invest in other properties so that you can manage to live modestly during the economic downturn.
Have cash: It is important to have cash behind to face any unforeseen situations.
Split your loans: Instead of relying on your mind to pay bills, pick a fixed-rate loan option so that you know how much you need to repay every month.
Study market: Do not rely on advisors only, and do research yourself about the area where you are buying the property. Keep an eye on supply and demand there, their demographics, average rental return, upcoming projects and supply and demand.
Assessing the risks earlier can help you invest smartly with the less chances of facing loss.
What’s the right rentvesting strategy to buy an investment property?
Rentvesting is for everyone, yet you need an effective strategy to keep yourself from loss and maximize profits.
The simplest strategy has three steps which any of you can follow to ensure security and avoid deductions.
1. Save for a deposit
Saving money in your account is a challenge when you have tons of expenses to cover. Yet, you can follow a simple rule of thumb – save 20% of your property value. 20% of the property value, in most cases, is equal to $200,000, which is a big amount. Therefore, it is suggested to invest in a property that has a lower market value if you are looking for a home.
You can follow these guidelines to save money and deposit for investment property:
- Set your goal
- Track your spending
- Cut down unnecessary expenses
- Automate transfers to your savings account
- Track how much you have accomplished your goal
This guideline will keep you sticking to your mission and pave the way to save the required amount of money.
2. Find the right property
In this step, you must hire a property manager, a buyer agent and a mortgage broker. A property manager will take care of the property, while a buyer agent Australia will help you get a property for investment within your budget, and a mortgage broker will help you with lending options.
Together, they help you find the right property. The parameters of finding an ideal home depend on:
- Location
- Capital growth
- Vacancy rates
- Rental price
3. Get a second property
Rentvesting is an approach to double your wealth faster by entering into property investing market. Therefore, don’t halt your growth with one property. Instead, find the other property. If things go smoothly, it means you have generated profit from your first property. You can use equity and savings from the first one to invest in the second one and aim to become financially free soon.
Invest in property confidently
Initially, you might feel that rentvesting is adding a burden to your shoulders as you would have a mortgage and rent to pay. Yet, if you have a helping hand in the form buyer agent who can help you get a profitable property within your price range, savings, and has done research, the effort will be worth it in a long run, especially when you sell the property and get a lumsome amount in hand.
Rentvesting allows you to build a self-system, giving you room to make an effort towards cultivating financial freedom. Yet, it is advised to invest in property when you are confident, when you have done research and have the support of an agent or a broker to avoid mistakes and losses.
Conclusion
Rentvesting is gaining attention in the current ongoing housing crisis because it allows people to invest in property at an affordable location while living on rent. However, this approach has pros and cons. Rentvesting offers tax benefits and helps you build wealth, but it also requires you to save money for a deposit. Therefore, it is required to weigh merits and demerits before making a decision. During the research phase, it is important to study the market, calculate the yield of the property and get a buyer agent who can help you and prevent you from losing. Investor Partner Group has a team of buyer agents with expertise in guiding customers through their process to cultivate financial freedom. Click here to book a free session with them now!
FAQs
How much deposit do you need for an investment property?
You need to save 20% of the property value to deposit for investment property. In most cases, it is equal to $200,000. You can save this much amount by setting a goal amount, tracking and cutting down your extra expenses, and measuring your progress towards your goal regularly. We have a team of buyer agents who can guide about minimum amount of money you need for a deposit when buying an investment property.
What is the buyer agent’s fees at Investor Partner Group?
Investor Partner Group aims to help commoners attain financial independence before their retirement age. Therefore, the charges of our buyer agents depend on the location, the property you are buying and your budget. If you buying an investment property in metropolitan cities such as Sydney or Melbourne, we will charge 1% to 3% of the purchase cost, including GST. Yet, if you are investing in other areas, our buyer agents’ charges will be less than the above. You can call us anytime to get the quotation. Our team will always guide you.
How can property managers help you in the property investing phase?
Property managers handle day-to-day operations to maximize capital growth and financial stability. They stay in contact with tenants to collect rent, maintain properties and ensure that everything adheres to compliance.
