At Worth Property Investing, we assist many young people looking to make their first foray into property investing.
We understand the challenges of securing your first property – especially if parents are not in a position to financially assist.
Given the exponential growth in property prices in our major cities over recent decades, and the fact that salaries have not kept up the pace, getting started in property is now harder than ever.
One alternative strategy is the increasingly popular “rentvesting”.
“Rentvesting” enables those who are new to real estate to begin building a property investment portfolio. It involves renting a place to live in the most suitable location, usually closer to the CBD, while starting an investment portfolio in an area that’s more affordable a bit further out.
Here are just some of the benefits of “rentvesting”:
LIVE WHERE YOU WANT
Renting accommodation close to the city or beaches can be much more affordable than buying in those areas. This is because capital growth in desirable postcodes significantly outpaces rental growth, which is anchored by inflationary patterns.
The lifestyle opportunities in these locations are particularly attractive to young people, and there can be more work opportunities also located there. An appealing apartment in the city may cost $600 a week to rent, but $900 a week if you were to be servicing a mortgage on the same property.
As a renter, you’re only committed to a property for a 12-month period. This can provide you with flexibility and opens up opportunities such as travel, relocating for a new job or for a new relationship.
Renting offers you more choice in how you live and where you live.
TAX DEDUCTIBLE MORTGAGE
Unlike homebuyers, who end up with substantial non-tax deductible debt, as a “rentvester” you can claim the interest on all your mortgage repayments associated with your investment property each financial year.
This can boost your cash flow and help to reduce your personal income tax liability.
You can also claim various expenses associated with the management of your property and depreciation, making property ownership a lot more affordable.
YOU COULD BORROW MORE MONEY
Lenders may facilitate you borrowing more as you’ll not only have your salary to demonstrate serviceability of the loan, but also the rental income generated by the investment property.
Lenders will take a portion of the projected annual rental income into account when assessing your capacity to repay.
This means you can potentially purchase a larger property than if purchasing an owner-occupied home.
YOUR HOME DOESN’T NEED TO BE YOUR BIGGEST INVESTMENT
Instead of the burden of repaying non tax-deductible earnings into ‘the home of your dreams’, you’ll have far more capacity to leverage the growing equity in your investment property to create a well-balanced, diverse portfolio.
This will help facilitate your future financial independence.
YOU CAN BUY YOUR DREAM HOME SOONER (AND WITH LESS DEBT)
By solely focusing on property as an investment, you’ll be better positioned to research the market, before entering it as an informed home buyer with equity from your existing investment.
The capital growth and market knowledge gained from investing will help you secure the home of your dreams sooner. This can be achieved with less debt and stress than most first home buyers experience.
LET YOUR TENANTS PAY OFF THE PROPERTY
While you’re happily renting where you want to live, your tenants will be paying off your mortgage.
Ideally, you want to hold a positive or neutrally geared property, where the rental income covers the costs associated with servicing the loan and other expenses for the property.
Thankfully this cashflow strategy is relatively simple to achieve in our continuing low-interest rate environment, overtime your rent will increase and the property will become positively geared, this means the asset is making you money!
How can Worth help you?
At Worth Property Investing, we’ll partner with you throughout the journey.
Our team guides and supports your property investing education, so you can achieve your property goals sooner.
Worth Property Investing can help you find the right property to meet all your requirements as a first-time buyer. We use real facts, due diligence and solid research to locate the right investments, and we have the track record to help you succeed.