We choose to live in Avalon but we’re not all millionaires. However, with the right strategy, you can live here and build the funds to own your dream forever home.
More and more people are now “rentvesting” outside of the area where they live, with the aim of one day being able to buy property on the Northern Beaches. Here’s how it’s done:
What is rentvesting?
One in four Australian property investors is now ‘rentvesting’. Many young people in particular want to live in areas where the property prices are too high for them to afford. Their strategy is to rent a home in that area, while purchasing an investment property in a more affordable suburb.
This has a number of benefits:
- It enables young people to get on the property ladder.
- Investment property owners can still enjoy living in the area they want, where they can be close to work, friends and family, and take part in their chosen social scenes.
- Renting out your investment property enables you to offset the costs of your own rent and home loan, while saving for the future.
If you want to live in an upmarket area such as Avalon, Clareville or Palm Beach but you can’t yet afford the property prices, it makes sense to stick with renting for the time being. However, you can still grow your wealth by purchasing an investment property somewhere more affordable.
Why and how rentvesting works
Property prices have risen dramatically over the last decade or so. The average Australian home loan is now 14 percent larger than it was five years ago, and a huge 58 percent larger than in 2005.
This may not be good news for first-time home buyers but it does show that property is a wise investment as it tends to increase considerably in value over time. In comparison to property growth, the money you will earn by keeping your money in a savings account is very low, in particular during this time of low interest rates.
The key to being a successful rentvestor is to buy a property in an area where house prices are currently affordable for you, but which is predicted to grow in popularity. As the area becomes more desirable to renters and occupiers, you will be able to increase the rental fee over time, bringing in more money for you each month. The other important factor you’re looking for is good capital growth. This can then go towards the cost of buying your own home in your chosen area or purchasing another investment property.
This is a long-term strategy but if you get it right it’s far more profitable than keeping your money in the bank.
Explore the financial benefits of rentvesting
If you’re going to rentvest successfully, it’s important to be aware of the financial benefits available to investment property owners.
Firstly, you can claim tax deductions on a number of key expenses, including:
- Property management costs
- Repairs and maintenance
- Interest repayments
- Depreciation on certain items
The rent you earn from your investment property may or may not be enough to cover either your own rent or your mortgage, (this will depend on your deposit), but it should at least go a long way towards offsetting the costs. Generally speaking, purchasing an investment property can cost as little as $60-$100 per week, provided you have a paying tenant.
Have a sensible strategy in place
Rentvesting is something that needs careful planning. You should research different suburbs thoroughly. Find an area where you can afford to buy a property and which still offers plenty of appeal for tenants and the prospect of long-term growth.
While rentvesting can be an excellent wealth-building strategy, you also need to be aware of the costs. Make sure you have saved enough for your deposit – this is usually around 20 percent of the property price. You will have to budget for unexpected maintenance and repairs. It’s also important to be prepared for times between tenants and to keep some money aside in case this happens.
Seek the right help
If you get rentvesting right, you can grow your capital to the point where you can afford more investment properties. Eventually, you will have grown your assets to a point where you can afford a home of your own in a beautiful area like Avalon
If you would like any advice on rentvesting or buying your first property, I’m happy to have a chat with you and put you in touch with the right people to help you.