The next big trend in property investment is ‘rentvesting’. As house prices sky rocket this strategy is becoming increasingly popular with young buyers. According to an Australian government report, middle income first home buyers are now unable to afford 70% of the property market. Rentvesting can be a great first step onto the property ladder without having to sacrifice lifestyle and location.
What is rentvesting?
Rentvesting is when you buy a property but rather than moving into it, the property is tenanted and you continue to rent (or live with family members). This allows buyers to have more flexibility and choice over where they live, rather than having to move further out from the city to more affordable housing.
This strategy would suit a young couple who enjoy living in the inner city but can only afford to buy in a regional area. Or a family who wants to live in a larger home but can only afford to purchase a small house.
Watch the above video or read on for our 6 top tips for first-time rentvestors:
- Don’t buy your dream home (yet!)
The great Australian dream is to own your own home. More than 70% of Aussies under the age of 30 consider property ownership to be their ultimate goal. Given this, it’s no surprise that investors often default to looking for their ‘dream home’.
But the problem with that is as soon as we get emotionally involved, we stop making smart investments.
Rather than dreaming about planting a veggie patch, or picturing new curtains for the living room, you need to focus on what future tenants are looking for. The numbers, the data, and the potential for growth are all much more important than your emotional connection with a house when it comes to rentvesting.
This is not to say you won’t ever buy your dream home! But getting smart about property investment purchases now will get you that one step closer to your dream home in a dream location.
- Embrace the sacrifices
For many, the pros of rentvesting easily outweigh the cons. They don’t want to sacrifice their lifestyle or suburb of choice. But for some, rentvesting will feel like a sacrifice.
Renting or living with family can certainly come with difficulties. Perhaps you’re keen to have stability, more space, or no longer want to answer to a landlord.
But if you can just hang in there and make these sacrifices in the short term, you could be in a much better financial position in the future. Not living in the property you are buying opens up a world of opportunity. You might live and work in Sydney, but you could buy in Brisbane, Perth, Adelaide – anywhere! When you’re not limited by location you can look for the best growth opportunities.
- Minimise your rental expenses
Many rentvestors have the long term goal of leveraging their investments to eventually get into their dream home. The best way to achieve this is to keep your rent expenses to a minimum.
Just like the point above, if you can hang in there renting a cheaper or smaller place just for a little bit longer it can really help your financial position. The lower your expenses are, the more the bank will loan you and the bigger investment you can make. This will give you more leverage in the future.
- Prioritise capital growth
Capital growth is key to building a portfolio of properties. The faster your investment grows in value, the sooner you can leverage the equity to buy a second or third house.
A great property investment will double in value in 10 years. That’s not always a given, and can be impacted by whether you’ve bought a house or apartment, inner city or regional. It’s important you do the research and get your head around the numbers. Just make sure you’re not drawn to a high rental yield at the expense of capital growth.
- Houses appreciate faster than apartments
Generally speaking, land will appreciate over time at a faster rate than apartments. For example, in Sydney from 2009-2019 house prices increased by 100%, while apartments on average increased by 25%.
Of course there are some exceptions, an apartment in Sydney CBD will most likely increase in value faster than a small house in a remote area. But usually when investors are looking for long term capital growth they will find houses outperform apartments.
- Maximise the rental yield
By studying the market closely you can make sure you are pricing your investment property right to achieve higher rents while keeping the house tenanted. Just because the property you are interested in is currently leased for $400 a week, doesn’t mean that is the right price. Do your research.
Understand what your market is after. You might find that a fresh coat of paint or installing a dishwasher or allowing pets might be simple changes that help to improve the rental return.
If you’re starting out as a rentvestor and want help avoiding common mistakes, book an obligation free discovery session with Inspire Realty now. We help you to invest with complete confidence!
