Rather than buying the house of their dreams, which many Australians cant afford at the moment, some Australians are electing to buy an investment property in an affordable area, and to then rent where they want to live. This new breed of home buyer is being called the rent-vestor.
Rent-vesting, buying a home where its affordable and then renting where you want to live, is becoming a common trend. According to a recent survey, the proportion of first home buyers who were investors doubled over the last 3-years. In fact, during 2011, less than 10 percent of investors were first home buyers, but by 2014, this number had increased to 22 percent.
Who Are Rent-vestors?
Rent-vestors are typically first home buyers who have an affordability issue and cannot buy in the area that theyd like to live in. But, wanting to maintain their current lifestyle in terms of living closer to the city and social venues, rent-vestors seek an alternative that allows them to break into the real estate market without busting their budget.
This strategy allows rent-vestors to build their property portfolios and their wealth according to their budget. With property prices moving up fast in some areas, some rent-vestors are only holding onto their property for a number of months, before electing to sell it, and then using the profit to buy another property in a better situated area.
Some rent-vestors are even buying into the Sydney market by purchasing property in the relatively low priced outer suburbs. These areas typically have increasing rents and this means an attractive rental yield. These investors are then choosing to live closer to the city in a rental, which gives them greater flexibility to move, or even travel and work overseas.
The number of rent-vestors has increased to the level that real estate agents are now targeting them on social media and offering them advice. Most rent-vestors, according to these agents, are typically young people who have deep pockets, theyve done well for themselves, but dont yet understand how to invest in property.
In a recent real estate survey, 24.1 percent of Victorian survey respondents said that they bought an investment property because they couldnt afford to buy where they wanted to live. In Western Australia and New South Wales about a 5th of first home buyers said that affordability had resulted in them looking elsewhere to buy as an investor, rather than buying a home for themselves to live in.
How to be a Rent-vestor?
To be a successful rent-vestor property experts recommend following these tips:
Buy in areas that arent subject to higher volatility.
Select an area that is a draw-card for key tenants, which typically includes being close to transport and amenities, with the area having future plans for infrastructure and growth.
With property prices on the rise, try to avoid pressure buying or making a rushed decision.
Know what type of property youre looking for, but be flexible.
Changes to lending policy are now becoming frequent, and this can make it harder to secure finance. So make sure you keep up with legislation changes and understand how these can possibly affect you.
If youre unsure, then ask a professional. A mortgage broker is ideal to talk to about your options as theyll help you to understand what you can and cannot afford, changes to lending criteria, and how you can save more when buying a property.
Where are the Best Places to Buy?
Rent-vestors whove been there and done that suggest that prospective rent-vestors look for a property that is situated in an area thats on the governments major growth list for the year that youre looking to purchase in. They also recommend not being afraid to invest in regional or rural townships.
In Sydney, the most popular suburbs for rent-vestors to buy in are St Marys, Parramatta and Blacktown. Suburbs that are closer to the city include Waterloo and Alexandria.
How Long Will it Take Me to Save for a Rent-vestor Property?
According to research conducted in 2011, 51.3 percent of New South Wales based first home buyers took approximately 2 years to save for their first property. But, with property prices continually climbing, it may take you a little longer.
To make your task easier, calculate how much youll need to buy a property, before you commit to buy, as additional fees and charges can add thousands to the cost of your investment property. This means calculating stamp duty costs, mortgage title transfer fees, bank and conveyancing charges and any other government charges, such as rates and the emergency services levy.
If youre seeking to save money faster then consider setting yourself a budget, and review how you can reduce your expenses. Its also a good idea to open a term-deposit savings account and put a specified amount into this account weekly. You can also sell any unwanted items and then deposit this money into your savings account.
Are you looking to be a rent-vestor, but dont know where to start? Then contact eChoice, we can help you understand the home loan market and find a cost-effective home loan..
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!