Young buyers can enter the market with rentvesting: a new trend
Buying a home in Newcastle or Lake Macquarie may seem increasingly out of reach for some young people, but there is a solution – rentvesting.
Since prices and interest rates have risen 143 times in just 15 months, rentvesting is gaining popularity.
Nigel Watts, managing director of Niva Property, says this may be a viable method for young people looking to get into the property market.
According to him, rentvesting is simply renting where you want to live and investing in a property in a better location.
“The first thing you should do is get into the property market at a young age, and with a well-chosen property you can start to build equity and wealth.
In addition to your normal savings, you can use this equity to help fund a future home.
The second benefit is that it teaches people about investing and finance, which is a great life skill to have, and thirdly, renting can be a great way to live your life before settling down in a family home.”
In the past five years, the average house price in Newcastle has risen 38% to $966,000.
There is a 43% rise in Lake Macquarie, to $935,000.
In the current real estate market, homebuyers typically need $200,000 saved for a 20% deposit.
According to him, a house loan with a 6% interest rate would require a monthly repayment of $4,593 – 63% of the average household income in Lake Macquarie and Newcastle.
A RENTVESTER’S GUIDE TO GOOD PROPERTIES
A good rentvesting property will have low vacancy rates and good overall yields, Nigel says. “Buying in a more affordable area with low prices, investing in a location with strong macro indicators that show positive capital growth prospects, and investing in a suburb with low rental vacancies will make for a good investment.”
Keeping the property for the long term is the most important thing, he adds.
The rewards of your hard work may not be realized if you sell within the first five years.”
In order to ensure affordability, he recommends working out cash flow projections before you invest.
“Investing in an established property that is able to be improved is a good strategy because you know what you are getting and there is generally less risk involved than buying off the plan.”
It is especially true now that many builders are going into liquidation and costs are rising.
By carefully planning and managing renovations, you can also manufacture additional equity with an older established property.
“Avoid something too rundown that needs a lot of work and costs a lot in maintenance and repairs,” he warns.
According to historical data, houses tend to outperform units, but if you can only afford a unit, consider one in a smaller complex which generally has fewer strata issues, lower costs, and fewer hassles.
WHERE TO INVEST IN RENTVESTMENTS
Nigel says, “That’s the million-dollar question.”.
“If you don’t feel comfortable buying away from where you live, your options are obviously limited, but you can still buy local and achieve your goals. It all comes down to where you live, affordability options and of course your borrowing capacity.
Setting realistic expectations is key, and you may need to invest in a new area.
You could also consider living in your rental property or rentvesting with a sibling or friend, according to Nigel.
Disclaimer: Nigel Watts is not a financial adviser or tax accountant and is not authorised to provide financial advice or taxation advice. You should ensure that you discuss your financial position and any investment decisions with your accountant and/or financial adviser.