Anyone thinking about buying their first home may have noticed something frustrating and rather critical to the process. It’s remarkably difficult to find a home you love in the region you want to live in for a price you can afford. Most first time home buyers are only able to find properties that meet two of these three requirements. Unfortunately, finding a home you love in the region you want to live simply isn’t enough if you can’t afford it, so what’s a buyer to do? There are a number of alternatives available for people who don’t have many thousands of dollars to throw down on a downpayment and stamp duties. Some consider going in on a home together with a friend who is also considering buying, some look into off-plan properties that are not complete yet, but many are picking up on a new trend called ‘Rentvesting‘
What is Rentvesting?
Rentvesting means using your first purchased home as an investment property while continuing to rent in the region you actually want to live. The most popular and populated parts of Australia tend to be very expensive to live in, particularly if you want to own property. However, if you’re willing to look into properties outside the concentrated population zone in rural and less built-up areas, you should be able to find a single family residence you can afford with your current downpayment savings.
Rather than dropping your life in the city to move away to your new home, the idea is that you instead continue to rent while simultaneously renting the home out to someone else. Because home prices continue to rise steadily, the idea is that the house will be worth more when you sell it in a few years, especially if you do some repairs and improvements, and the proceeds from the sale can go into a much larger downpayment on your next home.
Is Rentvesting Right for You?
Rentvesting is not an automatic business plan. It’s a form of forward planning for the future based on the trends in the housing market today. This investment could be incredibly lucrative as long as you’re up for the challenges of being a distant landlord. By buying a property then renting it out to someone else, you are putting yourself in the place of responsibility for repairing major appliances, keeping the property safe, and making tough decisions like whether or not your tenants are allowed to nail up pictures, shelves, or curtains. When deciding if rentvesting is right for you, consider these things:
- Do you want to be a landlord?
- Do you like doing repairs?
- Do you want to play the housing market?
- Are you comfortable living far from your first property?
Do You Want to Be a Landlord?
Being a landlord is a big responsibility. It means you are responsible for taking care of someone’s home as well as any damage that your tenants might do to the property. You’ll need to be prepared to be tough but fair on a number of questions that may come up and stick to your lease like the legally binding contract that it is. While this may be a lot of work, a lot of people really want to be landlords and have always planned on owning investment property further down the line. If you like the idea of being a landlord, then rentvesting is likely to be the right choice for you.
Do You Like Doing Repairs?
Hiring a contractor for every little repair can get pretty costly, especially since as the landlord you’re responsible for the bill. That said, if you (or your partner) are handy with tools and are good at basic home maintenance, you could be more than capable of fixing up, improving, and maintaining a property for your tenants, and then as a ‘flip’ later on for your downpayment money on the house you really want.
Do You Want to Play the Housing Market?
Really this is the big question. Either you want to play the ‘trade up’ game by improving the value of the home you buy and selling it for many thousands more than the price you purchased for or this sounds like a huge hassle to you. If the entire concept of renvesting seems like too much trouble, you’re better off saving up your money for a few more years until you can afford that big downpayment. However, if you like the idea of getting into real estate now, rentvesting can be the perfect introduction.
Are you comfortable living far from your first property?
One of the biggest challenges of rentvesting is that you openly intend to buy a property far from where you want to live. After all, if it were close to your favorite region or city, you would simply move in. For many people, the idea of living far away from their very first property is unnerving and if you are one of them, you might consider an alternative other than rentvesting. However, if you’re cool with being a long-distance landlord and possibly hiring a property manager for the nearby stuff, this could easily be the financial solution for you.
If you do decide that rentvesting is the right choice for you, remember not to get caught up in the apparent opportunities. Always hire a professional inspector to confirm that a home is in good and safe living conditions and consider getting a building contractor’s opinion on what it might take to renovate, update, or otherwise improve any property you consider. Read the lease carefully, and never forget that you’ll need to hire a conveyancer and possibly a lawyer in order to complete the title exchange.
Happy house hunting!
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