Rentvesting is a way to crack the market, but where should you start? Picture: Tim Carrafa
If you can’t afford to buy a home in the suburb you want to live in, rentvesting can be a clever way to get your foot on the property ladder. But if you’re hoping to eventually turn rentvesting into home ownership, the type of property you invest in now could either help or hinder your chances.
BUILDING EQUITY
Most rentvestors have affordability stacked against them when it comes to buying a home in their preferred market. So when it comes to choosing where to invest, affordability remains a key consideration, Propell Property managing director Michael Pell says.
Affordability is the usual starting point when it comes to rentvesting. Picture Thomas Lisson
“You’ve got to assign your funds – your deposit and what you can borrow from the bank that is within your means – to the best possible investment property in the best possible area given your situation,” he says.
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Those wanting to convert good investments into a home purchase further down the track often focus on capital growth in order to build equity, he says. That usually enables investors to either sell up or access equity through the bank to use as a home deposit.
“As a general rule, land content is the most important thing, I think, for capital growth,” he says. “So, they’ve got to be buying a property with good sized land content in an affordable, in demand, low supply area.”
The Investors Agency CEO Darren Venter. Picture: supplied
YIELD PRODUCTION
Attractive yield production is an important thing to look for that can help to mitigate against the risk of interest rate hikes, says Investors Agency CEO Darren Venter.
He cautions against buying at the limit of your borrowing capacity – especially in markets at risk of being overinflated as more first homebuyers make use of the government’s 5 per cent deposit scheme.
“The security around that comes into looking into property markets where we know that there’s going to be a requirement for rental need – because we know that when there’s a need for an asset, the competition is what inflates those prices,” Venter says. “The responsible way to do that is by looking at what’s inside these areas that can support the rent for these people’s requirements.
Propell Property managing director Michael Pell.
“The areas that are going to be stimulated by strong economics are the areas that rentvestors need to focus on if they are trying to be responsible about the way that they are planning their purchases for 12 months’, 24 months’ time.”
THE ROAD TO HOMEOWNERSHIP
Venter says when it comes to figuring out if a particular investment property is the right vehicle to help you travel to your goal of homeownership, it’s important to consider future serviceability.
“It’s all about leveraging the debt that you’re getting into,” he says. “You can’t leverage debt unless you have the ability to access the debt.”
Where will your rentvesting journey take you on your path to homeownership?
He says the big four have lending calculators that can estimate your potential serviceability further down the track based on an investment property purchase made in the present day.
Mortgage brokers are also able to help map out a path to homeownership by modelling lending scenarios around accessing equity to use as another deposit.
GOOD GROWTH SUBURBS
Propell Property managing director Michael Pell says when looking for a location with good growth prospects, the following factors should be front of mind:
* Low supply vs. high demand – the simple equation that most often drives up prices
* Days on market – lesser days on market usually indicates higher demand
* Infrastructure spending – can often indicate growth and development of a region
* Population growth – more people coming into an area with limited supply can often drive up prices
Strong rental demand is important. Picture: NCA NewsWire / Flavio Brancaleone
* Demographic and income – who makes up the population and are they earning enough to sustain higher rents and rising property prices?
* Economic growth – indicates growing wealth in the area as residents spend on local businesses
* Proximity to amenities – demand is often high for convenience, whether that’s being close to schools, shops or transport
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