Saving for a deposit for your first home requires discipline and 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.
You can modify your strategy to ensure you can climb onto the property ladder.
There are two common paths to take. You can head for a regional centre to build a life, find employment, make new friends and finally own your own home. It’s a big decision, but many young people do it and never look back.
The second alternative doesn’t require a significant upheaval – you can become a “rentvestor”, where you purchase the home you can afford and rent it out. You then rent where you want to live while reaping the benefits of being a landlord and property owner.
It can be a great approach for young couples and families who are not ready to quit the bright lights yet remain laser-focused on owning real estate.
Below are some tips and watch-outs to help you consider a rentvesting strategy.
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 talking to agents and reviewing rental listings online.
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 personal circumstances.
Things to watch for:
Cash shortfall – The rent may not cover the entirety of the mortgage. Make sure you have the cashflow 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 period of time 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 and can be worth their weight in gold. But you do need to 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 broken hot water service doesn’t tip your finances over the edge.
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Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice.