Rentvesting – renting a property to reside in while buying one or more properties for investment – is becoming a highly common way for Australians to get a foothold on the housing ladder. As per Property Investment Professionals of Australia (PIPA)1, 36% of first homeowners chose to invest in real estate and rent the property instead of purchasing a home to end up living in 2018.
But while the possibility of purchasing where you can justify paying and paying rent where you’d like to live sounds attractive, there are a few things to remember. Here we detail the top five of us.
Having a loan is more complicated than it was
While the tougher controls that APRA has put on interest-only debt have lately been relaxed, many providers have increased interest rates on interest-only debt, and lenders will need to meet tighter income and expense tests. You will have the best chance to qualify for a line of credit if you have adequate deposits and proof of real savings to prove that you can handle your finances.
Having to borrow less than 80 percent of the value of the property also helps avoid Lenders Mortgage Insurance (LMI), which could also increase the costs of your acquisition. Financial institutions will also review your credit record and necessitate you to confirm that you have good earnings and a steady job before you approve the loan, so get your ducks in a row before you apply.
You will not qualify for government support
If you are a first-time home buyer, you could be eligible for a stamp duty waiver or an incentive if you purchase the first property to reside in. The First Home Owner Award varies from state to state. In Victoria and New South Wales, for instance, first homeowners are eligible for $10,000 to purchase a new property below $750,000.
First homeowners will also have access to the entire or limited decrease in transfer duty (formerly known as stamp duty) in certain states. If you consider rent vesting as a tactic, it is worth remembering that you would not be eligible for some of these free kicks that may help cover the cost of your acquisition.
Better regarded as a long-term approach
Many rentvestors consider the tactic to be a step towards realizing other plans, such as purchasing a family house to reside in. However, though data1 has started showing signs that Australia’s real estate market is now approaching a low line, with auction clearance rates rising, there is little indication that real-estate markets will rebound to booming times any time soon, so do not depend on rapid capital growth. Real-estate investment is better regarded as a long-term investment plan of 7 to 10 years.
So, when you’re looking for your ideal “rentvestment,” make sure that you look at the big picture and weigh in any possible plans, such as raising children or living on a single income, when you determine what you can handle.