Rent vesting is a way to crack the market, but where do you start? Photo: Tim Carrafa
If you can’t afford to buy a house in the suburb where you want to live, rentvesting can be a smart way to get your foot on the property ladder. But if you hope to eventually convert rentvesting into homeownership, the type of real estate you invest in now can help or hinder your chances.
BUILDING STRENGTH
Most renters struggle with affordability when it comes to purchasing a home in their preferred market. So when it comes to choosing where to invest, affordability remains an important consideration, says Michael Pell, director of Propell Property.
Affordability is the usual starting point when it comes to rent vesting. Photo Thomas Lisson
“You need to allocate your money – your deposit and whatever you can borrow from the bank that is within your means – to the best possible investment property in the best possible environment, given your situation,” he says.
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Those looking to convert good investments into a home purchase further down the road often focus on capital growth to build equity, he says. That typically allows investors to sell or access shares through the bank so they can use them as a home deposit.
“In general, I think land content is the most important thing for capital growth,” he says. “So they need to buy a property with a good amount of land in an affordable area where there is high demand and low supply.”
Darren Venter, CEO of the Investors Agency. Image: supplied
REVENUE PRODUCTION
Attractive yield production is important to look for and can help limit the risk of rate increases, says Darren Venter, CEO of Investors Agency.
He warns against buying at the limit of your borrowing capacity – especially in markets at risk of becoming over-inflated as more first home buyers take advantage of the government’s 5 per cent deposit scheme.
“The certainty around that comes from looking at real estate markets where we know there’s going to be a need for rental needs – because we know that when there’s a need for a good, it’s competition that inflates prices,” says Venter. “The responsible way to do that is to look at what is in these areas that can support rents for the needs of these people.
Propell Property director Michael Pell.
“The areas that will be boosted by a strong economy are the areas that renters need to focus on as they try to be responsible about how they plan their purchases over the next twelve, twenty-four months.”
THE ROAD TO HOMEOWNERSHIP
Venter says that when it comes to figuring out whether a particular investment property is the right vehicle to help you achieve your goal of homeownership, it’s important to consider its future usefulness.
“It’s all about making the most of the debt you take on,” he says. “You can’t get into debt unless you have the ability to access the debt.”
Where will your rentvesting journey take you on the road to homeownership?
He says the big four have credit calculators that can estimate your potential utility down the road based on the investment property purchases you made today.
Mortgage brokers can also help chart a path to homeownership by modeling lending scenarios around accessing home equity to use as additional deposits.
GOOD GROWTH SUBURBS
Propell Property managing director Michael Pell says that when looking for a location with good growth prospects, the following factors should be paramount:
* Low supply versus high demand – the simple equation that usually drives up prices
* Days on the market – Fewer days on market usually indicate higher demand
* Infrastructure expenditure – can often indicate growth and development of a region
* Population growth – When more people come to an area with limited supply, prices can often rise
Strong rental demand is important. Photo: NCA NewsWire / Flavio Brancaleone
* Demographic and income – Who makes up the population and do they earn enough to support higher rents and rising real estate prices?
* Economic growth – indicates growing prosperity in the area as residents spend money at local businesses
* Proximity to amenities – The demand for convenience is often high, whether it concerns the proximity of schools, shops or public transport
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