A report by Mortgage Choice and Core Data revealed that 90% of Australians no longer see the typical “Great Australian Dream” of owning your own home, as an achievable goal. With the key deterrent being affordability.
A further study by Lendi found that 56% of millennials in Australia (aged between 22 and 36) did not believe that they would ever own a property outright.
56%… That’s some pretty crazy stats right there!
For many of us, we know that saving a deposit to purchase a property, especially the first one, is a massive task. Many new buyers also forget to factor in the other costs associated with purchasing a house. These typically include:
- stamp duty
- legal fees
- mortgage insurance
- building inspection fees
- and in some cases, renovation costs.
This means that not only do you need to save for your deposit, but you also need to be prepared with a sufficient buffer to cover everything else.
If you have been listening to the media or your baby boomer parents, it’s possible that you are feeling some pressure about getting into the property market as soon as possible.
But, what if we told you that there is an easier way… ?
What if we told you that we could get your foot in the property door in a much less stressful way? AND without having to save such a huge deposit.
It’s time for you to sit back, take a few deep breaths and start to consider whether buying your first home is really the best strategy for your current situation and your financial goals.
The First Question – To Rent or To Buy?
This question has irritated hard-working Aussies for decades, and despite what you have been told (or what some may believe), buying your own home is not always the best option for entering the property market and building your wealth.
Research papers from The University of Melbourne and the Reserve Bank of Australia found that renting can actually be just as financially rewarding in the long run as owning a home that you live in.
This is why it is a smart and intelligent idea to review all of your options before making any decisions.
Rather than settling for the choice of renting or buying, why not consider a strategy where you can do a bit of both?
Commonly being referred to as Rentvesting.
What is Rentvesting?
Rentvesting is a relatively new buying strategy, where an individual or couple purchases their first property as an investment rather than a home.
It gives them the ability to live where they want and to buy where they can afford.
You may choose to rent in a more desirable location in a particular suburb or proximity to work to make life easier, more fun and more affordable. Then choose to buy a property that’s within your budget and therefore in a more affordable location with more capital growth opportunity.
Imagine being able to live the lifestyle you want while being able to build an investment property portfolio at the same time that’s completely in line with your long-term goals.
Plus, by renting out your investment property to well-selected tenants, your loan repayments can be as little as $50 per week.
(In fact, we have some clients who don’t spend a cent on their investment loan repayments… but more about that another time.)
According to Element Finance, the term “rentvester” also applies to many Gen Y first home buyers who are “typically living at home with mum and dad to reduce their living expenses, whilst they save up a deposit for a property purchase.
“These savvy property buyers may continue to live at home with mum and dad even after they’ve purchased their first property, and perhaps even after they’ve purchased their second
Let’s look at the 4 main advantages of renvesting:
1. You Can Enter the Property Market Sooner
One of the primary advantages of rentvesting is that you can enter the property market earlier, and in many cases, with a smaller deposit.
It is extremely advantageous to invest in a less expensive property in an area full of projected future growth. And while your first investment property is appreciating in value (because you used your new found financial intelligence to buy the right property at the right time in the right location with the right strategy) you can continue saving as you have been doing for a deposit on a second investment. So, as soon as your first asset has hit your growth target, you can invest intelligently again.
Remember! – The sooner you get into the property market, the sooner your property can begin generating some nice capital gains (not to mention tax reductions), allowing you to invest your money further!
Or you could choose to be stuck in a 30-year mortgage, living in a suburb you don’t want to live in and having no asset base growing in your portfolio.
2. You Can Have the Lifestyle & Flexibility You Want
According to Your Mortgage:
“the key drawcard for Aussie homebuyers is the fact they don’t have to sacrifice the lifestyle they want in order to work towards buying their dream home – they can live near the city, the beach or near good social amenities while using this investment property to save.”
If rental prices allow, you can live in your dream home a lot sooner and without having to compromise on location, features or a bucket-load of cash.
Not having a permanent address and a mortgage on your own home, also provides you with greater freedom to:
- Choose where you want to live
- Choose how long you’d like to live there
- Upgrade or downgrade depending on your personal situation
- Go travelling when you like, without the same burden of when you’re living in your own home.
- Try different locations and housing styles (apartments, character homes, townhouses etc)
If you are young, a keen traveller or a career-focused individual, you should definitely be considering rentvesting over buying for the lifestyle flexibility it allows.
3. Tax Benefits
There are several tax benefits when you rentvest rather than pay off your own home loan.
Many of the costs associated with owning an investment property, including interest repayments on your loan, are tax deductible. Yet, when living in the home you are paying off, your mortgage repayments are not tax deductible.
Nor are your fixtures and fittings, water rates, land rates, outgoings, maintenance, capital improvements etc. the list goes on.
Moreover, if you find yourself in a situation where your investment property is running at a loss (which is not a bad thing at all), you can still manage your strategy to improve these tax benefits.
4. Investing in Your Future
With uncertainty over the future of the pension, and superannuation unlikely to be enough on its own to cover the costs of retirement, it’s never too early to start planning for a self-managed retirement.
Not having to worry about the long-term commitment of a big mortgage and owning several assets that are being paid for by others, frees up your cash and enables you to diversify. This is exactly what you can discover through a Planning and Strategy Session with one of our Expert Client Managers.
Your vision and outcome, your financial goals in retirement, need to be discussed now. And you need to make the right decisions now, to ensure you are moving in the right direction.
What’s the Right Strategy for You?
Unfortunately, there’s no stock-standard answer to this question. The right approach for you will depend upon your personal circumstances and your financial goals.
There are pros and cons to both buying your own home and then investing, versus rentvesting, building your asset base, and then having your asset base purchase your own home a little later on.
This is why we recommend that you seek professional advice to get an accurate understanding of your current capabilities, and what the right strategy is for you to achieve both your short and long-term financial goals.
Careful and thorough research is the key to success with a rentvesting strategy.
At Infinite Wealth, our team of Rentvesting experts can ensure that you make the right decision and implement the right strategy for you to acheive these goals.
If you’re interested in getting started. You can book in for a FREE “Planning & Strategy Session” right now. Just click here to get started..