Rentvesting

In the Northern Rivers rentvesting could be a way for some people to get into the property market, even if they think they might not have the chance. The idea behind rentvesting is that you rent a house or property in the area you want to live then buy a house or property in another location.

Why would you do this?

For some people the reality is that they want to live in a place they may not be able to afford to buy but can afford to rent. This might be because they appreciate the community, they need to live near work, they are currently happy with where they are living but want to invest, or would like to buy a place where they would like to move to in the future. This means that it might work more effectively for them to rent in one place and live in another.

Investments

But whether you are investing in the stock market, or investing in property you need to think carefully about the pros and cons of that investment. Unlike investing in the stock market investing in ‘bricks and mortar’ – a house or property, means that you can’t quickly liquidise your asset and turn it into cash like you can if you decided to sell shares on the stock market. Investing in a house or property – you need to consider if you have the liquidity to invest and enough cash flow to ensure you don’t require a quick cash injection because to sell a house or property can take time depending on the market.

Deposit

A big challenge to buying any property can be saving up the deposit. It is normally recommended that you have a minimum of 20 per cent for a deposit on the property you wish to purchase. For an area like Byron Shire where the median house price is around $1.38 million that is a minimum of $276,000. However, in other regions that have lower house prices you would need a lower deposit, making the initial hurdle of the 20 per cent deposit more achievable.

When you are looking to invest, rather than buy your dream home, it is important to look at a range of elements that would ensure you are buying a property that is going to provide you with what you require financially. This might be a steady income stream or perhaps you are looking to take advantage of negative gearing. This will impact both the area, property and expectations around what you are looking for in an investment property.

Good rental market

When you own a property to rent you need to consider how easily you can rent it out. If you have a period where you are unable to get a tenant or you need to do repairs then you will still need to cover the mortgage costs so as a rentvestor you need to have the income or savings to cover any period where you may not have a tenant. Currently across NSW there is a tight rental market with housing rental vacancy rates often below two per cent. That means there is low rental vacancy, or there are very few properties available on the market to rent and that lowers the risk of having an empty house and no income. However, as a rentvestor you need to be prepared for changes in the market, for example if the rental market vacancy is four per cent or above then it is considered oversupplied, and that is when a property owner runs the risk of not having a tenant.

If you are renting a property, maintenance and repair of the property is the cost of the landlord so as a renter you avoid those long-term costs. But as a landlord you will need to factor in the costs of management of repairs to the property you own. It is important to look at the condition of any property you buy and what will be needed to maintain it as well as considering things like insurance, securit, and if you are buying a flat or apartment then the costs involved with the body corporate and strata title.

Location, location

It is vital that you look at the area in which you are buying your investment property as this will impact your potential for selling in the future. As a rentvestor you are not tied to buying a house or flat in the area you want to live so this provides you with the flexibility to look at the market and ensure you buy a property in an area that has both a tight rental market but a good future opportunity to sell. This reduces the risk that when you want to sell and access the monetary value of the property you not stuck waiting for the house to sell.

Value growth

If you are buying a property, looking at the future increase in value of the property is a key part of your analysis. Buying a property in an area that has low growth in property values means that your investment will not grow quickly so it is important to consider if you are looking for significant growth in value, a regular, stable income from rent, to utilise negative gearing, or a combination of these strategies. If you have high growth you also need to consider the impact of capital gains tax when you sell as this property is not your primary home.

For a person not living in the house they are buying they are also not eligible for the First Home Owner Grant which are traditionally tied to you living in your purchased home for a period of time.

While there are risks associated with rentvesting there are significant benefits that allow people to get into the property market while still being able to live in their preferred location, especially when they may not be in a position to buy in the area they want or need to live. Whenever you look at buying property, either as a rentvestor, investor, or homeowner, it is important to seek out good financial advice and have a clear strategy concerning what you are looking to gain from the investment so that you can make clear decisions and ensure you are not left out of pocket at the end of the experience.