Why 2017 is The Year of The ‘Rentvestor’

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Can't afford a house in your dream suburb? Try this.

The interior of a modern home

Are you a renter who doubts whether they’ll ever be able to get on the property ladder? There could be another way, says Nathan Smith, founder of Birdie Wealth, who walked away from a job at a top mortgage brokerage firm to launch a startup dedicated to empowering consumers. The answer? Become a “rentvestor.” So, what is that exactly? “A rentvestor is somebody who begins building an investment property portfolio while continuing to rent,” says Nathan. “Rentvestors break the mould of the ‘Great Australian Dream’ that we should aspire to buy a quarter-acre block of land and build a property portfolio”. Instead, they’re rewriting the rule book when it comes to where they live and buy. Thinking about it? Here’s why the trend is taking off:

We want to live in luxury

”Rentvesting is certainly more common with Gen Y,” says Nathan. “Many of the areas they live in are unaffordable, however they still want to get on the property ladder and make the most of their income. It allows them to look Australia-wide for the best property for their financial limits, but they can continue their dream lifestyle in an area which may be unaffordable for them to purchase. Many are forward thinking and buying their family home now so they can purchase at today’s prices and then renting it out until they’re ready to move out of the city. Or, they’re purchasing properties in high-growth areas to earn a deposit for when they want to buy a home.

We’re struggling to save

There are ways to purchase a property with lower deposits using guarantors and government grants. This is where a good broker comes in. but you need to be (brutally!) honest with them about your situation. As a broker, I prefer to see a client as soon as they are considering buying a property. It allows them to put a strategy in place to help you purchase a property sooner. This may be helping with a budget and savings strategy, or working to reduce personal debt. The good news? You may be entitled to the tax benefits of investment properties including negative gearing and depreciation.”

We’re splitting the cost

“Many clients come to me with the idea of buying property with either family or friends, although it’s important you take steps to protect yourself. It may certainly allow people to enter the property market sooner, but there are additional risks. My advice to clients considering this is to have a definitive exit strategy and get independent legal advice. When purchasing a property with somebody other than your partner, you often end up at different life milestones at different times. What happens if one party needs to sell due to financial difficulty or if they want to buy with their partner? Map out a number of scenarios so you have a clear understanding of what will happen under different circumstances.”

We need flexibility

“One of the benefits of not living in the property you own is you can be a home owner but continue to live nomadically (which suits millennials). One of my clients, a couple in their early thirties, bought an investment property on the South Coast of Sydney, rented it out and went backpacking for four months across South America. When they returned, the husband was relocated for his job for six months. Because they didn’t live in their property they were able to up and leave at a moment’s notice. Most Gen Y are comfortable in changing jobs and careers when needed, so continuing to rent gives them this flexibility to move when a new opportunity arises.”

We’re wannabe moguls

“I have clients who doubted whether they would be able to buy one property, but thanks to rentvesting now have two or more. The first property is certainly the most difficult to buy. A lender will certainly look favourably on your position if you can show you are paying the first loan on time and without any missed payments. But remember that a second property means all costs are doubled (landlord’s insurance, fees and maintenance). Stress test your budget. Can you still afford the properties if rates were to rise, if there was a large one-off expense or there were changes to the tax laws? It’s important to work with a team of professionals who can give you independent advice, but you might be surprised at what you can buy.”

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