Saving for a deposit for your first home requires discipline. It can be hard work, especially when the market dynamics are influenced by interest rate movements or growing values in your target suburbs. But don’t let frustration signal the end of the road for your ownership ambitions. As experienced mortgage brokers, we believe you can modify your strategy to ensure you can climb onto the property ladder. One option you could consider is becoming a ‘rentvestor’. Rentvesting is where you purchase a property within your budget and rent it out. You then rent where you want to live while reaping the benefits of being a property owner and landlord. It can be a great approach for those who want to stay in busier areas, such as major cities, yet remain focused on owning real estate. Below are some tips and watch-outs to help you consider a rentvesting strategy. THE POSITIVES: - THINK LONG-TERM: Capital gain from property takes time, so make sure it matches your other personal and financial goals.
- PROPERTY CHOICE: Your purchase must be attractive to tenants. The property will crush your cash flow if it’s vacant. Research the types of homes popular with renters including agents and reviewing rental listings for the area.
- LOCAL SERVICES: Ensure your property is near shops, schools and other amenities. Local transport is not the best in many areas but good transport can help attract good tenants.
- FINANCIAL BENEFITS: A good accountant will also maximise the tax benefits of being a landlord. Make sure you get tax advice before you purchase. Don’t assume! Your accountant is best placed to know your circumstances.
THINGS TO WATCH: - CASH SHORTFALL: The rent may not cover the entirety of the mortgage. Make sure you have the cash flow to cover any shortfall and know how long you can cover a gap before it becomes personally unsustainable.
- LOAN COSTS: Lenders tend to charge a higher interest rate on an investment loan, so consider whether living in the property for a while is an option for the first year or two.
- MANAGEMENT FEE: Many clients use a property manager to look after their property and pay 6-10% of the rent in fees. A good property manager will help set the rent, negotiate with potential tenants and handle maintenance. Make sure you budget for them.
- UPKEEP COSTS: If you buy an apartment, predetermined strata fees apply and should be in your budget calculation. With a house, maintenance costs can be higher. Make sure a broker hot water service doesn’t tip your finances over the edge.
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