Rent-Vesting: What is it and How Can it Work For You?
Buying property has long been the great Australian dream. With current property prices however, particularly in major cities, buying a home in the area you desire is not always affordable. This often means you either need to relocate to a less expensive area, or not buy at all. That is where rent-vesting can be a great solution.
Rent-vesting is somewhat of a buzz word around the real estate world and those who comment on it. It simply means you buy a property in an area that you can afford and rent it out to tenants, and then rent a property in the area you want to live in.
So what are the pros and cons of rent-vesting?
Rent-vesting allows those who want to get into the property market but perhaps cannot afford to purchase in the area they want to live in. It can also help those who are living in an area they do not want to buy in – i.e. those stationed in locations temporarily for work – but want to buy in an location they see value in long term, whether it be for them to live in in the future or to remain as an investment. Either way, it means you can still get into the market and have a property investment working for you, while living where you want or need to.
Renting the home that you live in means you are subject to regular rental inspections, and to owners selling or wanting to move into the property themselves. This means stability in where you live is not like it would be if you owned the home you reside in.
Another thing to remember is that capital growth of the property you buy will be based on the area you purchase in, and this will not necessarily be the same as where you might hope to be able to buy in the future.
When it comes to setup costs, because it is an investment property you will most likely not be able to get any assistance with a first home owners grant so you will have to foot the full stamp duty bill.
Making it Work
It sounds simple but make sure you buy a solid property. Do plenty of research on the area, including current and planned infrastructure, as well as they type of tenant you are likely to attract. A bargain property might also attract bargain rent, and possibly not such a bargain tenant! Consider the return you are looking for. Is it capital growth or rental return, or perhaps both? Make sure you do your numbers based on the expected rental income, your property costs - such as mortgage, rates and maintenance – as well as the rent you will be paying on the home you are going to be living in.
To find out if rent-vesting can work for you contact us.