With skyrocketing home prices in cities such as Sydney and Melbourne, first home buyers are taking a longer term route to home ownership: rentvesting. With no hope of raising a six-figure deposit, and insufficient capacity to make the subsequent mortgage repayments, many are choosing to rent near their place of work and buy an investment property in a much cheaper market elsewhere.
Rentvesting allows first time property buyers to get a toehold in the property market, build a property portfolio and, in time, use the equity in their investment properties or profit from their sale to buy their own home where they want to live.
Taking a different approach
First time buyers considering the rentvesting route to property ownership need to keep in mind that buying an investment property requires a different approach to buying a home of your own. It's important that you take a strictly business approach and keep emotions at bay. Remember at all times that you are not looking for a home that appeals to you personally but a property that offers good rental returns and potential capital gains.
If you can't afford to buy in your own city, look to thriving regional areas with good growth potential and strong rental demand. Prices in some regional areas are highly affordable, and you may even be able to get started with a property for under $200,000, with the rent covering your mortgage repayments.
It's also important to look for low-maintenance properties that will not attract extra maintenance or renovation costs over time. So, avoid that charming old weatherboard cottage with rambling gardens in favour of a near-new brick townhouse with a small courtyard.
It's also vital to consider the risks. What happens if the property lies vacant for a while between tenants or tenants damage the property or fail to pay the rent on time? Make sure you take out a comprehensive landlord's insurance policy to cover you for these contingencies.
Getting your team together
Before you begin searching for the right property, get your team of professional advisors together.
A good buyer's agent can keep you on the straight and narrow and review properties for you, help you select the best suburb or town to target and even save you time by finding a property for you and negotiating the price with the vendor. He or she will also be able to put you in touch with a mortgage broker, financial advisor and accountant if needed so you are backed up by a skilled team of professionals.
A buyer's agent will select a property in the right area and at the right time in the property cycle to protect you from making a poor investment. He or she will look at potential capital gains and ways to increase your equity in the property. It's important to ensure you choose a registered buyer's agent as some people calling themselves property investment advisors or similar are really spruikers for a particular property development and will not have your best interests in mind.
When you speak with a buyer's agent, ask if they are getting any commissions from other parties and what their research rate is. A reputable buyer's agent will be an invaluable guide to you as you begin your rentvesting journey and beyond as you build a solid property portfolio.
Managing your investment property
Another professional resource you can count on for ongoing advice is the Century 21 real estate team in the area you are looking to buy. Once you have purchased that all-important first investment property, your local Century 21 property management team can ensure any potential tenants are thoroughly vetted and that your property is regularly inspected and any maintenance issues are promptly dealt with.
Surrounding yourself with the right professionals to assist and guide you is key to a successful rentvesting journey that leads to financial security and, in time, ownership of your own home.