Rentvesting has become a popular and affordable way for young buyers to crack the market. Picture: Thomas Lisson
Rentvesting is a popular way to build wealth through property when you can’t afford to buy where you want to live. But as the following commonly made mistakes show, it’s not necessarily a golden ticket towards home ownership.
RENTER LANDLORD RELATIONSHIP
As a rentvestor, you are both a landlord and a renter – in a way, it gives you a different perspective from both sides of the fence. However, given the current lack of rental supply still affecting the nation, says PIPA Chair Nicola McDougall, it pays to have a long-term strategy that will one day see you jump the fence altogether and become a homeowner.
In fact, one of the biggest mistakes rentvestors make is to not plan out how they will exit the rental market for good.
Experts say rentvesting should be just the start of a property wealth-building journey. Picture: Tim Carrafa
“When you’re a rentvestor instead of a homeowner, you are giving up some of that control in regards to your housing tenure,” McDougall says.
As a renter you will face lease renewals, rent increases and possibly evictions.
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You also won’t be able to renovate or extend your home as desired and may not be able to get a pet without your landlord’s written consent, depending on which state or territory you live in.
“Rentvesting is a really good strategy for anyone – but I’m not too sure how it works over the super long term,” she says.
While affordability is important when rentvesting, it’s not the only metric you need to consider.
LOCATION FLOP
Another big mistake rentvestors make is to buy an investment property in an area they can afford without properly researching the location first, says buyer agent and author of Positively Geared Lloyd Edge.
“What they really need to do is research the market very thoroughly around what infrastructure is going into a certain area, look at the jobs growth, the population growth – all those things that would make it a good investment growth spot to buy into,” he says.
While it depends on the strategy and income of the investor, cashflow is another important thing for rentvestors to consider, with a yield higher than 5 per cent generally considered necessary to cover mortgage repayments and other expenses, he adds.
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A physical inspection of the property before purchase is always important. Picture: Sarah Matray
BUYING SIGHT UNSEEN
Since rentvesting enables you to buy anywhere you can afford while living in the suburb of your choice, some rentvestors decide to forego walking through the property and buy “sight unseen” after viewing online or via a video call, says Edge. But this comes at a risk. Not only could you miss seeing faults in the property itself, you could also overlook important things about the neighbourhood that could detract from the value of the property or make it less desirable for tenants.
“The house next door could have a drug lab or noisy dogs,” he says.
McDougall recommends engaging a property expert to help you seek out the best opportunities for your budget as a rentvestor.
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PIPA chair Nicola McDougall.
”As a rentvestor you really want to make sure you are tapping into expert assistance to ensure you are purchasing the very best property,” she says. “Also, they need to understand that the first property they are buying, being an investment property, there will be Capital Gains Tax implications at the end of their journey.”
RENTVESTING TIPS
Buyers agent Lloyd Edge says it’s important to thoroughly research the following points before buying an investment property as a rentvestor.
* Location – make sure there is solid jobs growth, infrastructure development and population growth occurring
* Cashflow – aim for a high enough yield to cover the mortgage repayments and all your running expenses
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Buyers’ agent Lloyd Edge.
* Pest and Building report – don’t skimp on getting the relevant checks done, such as Pest and Building and Strata reports, and be wary of selling agents pushing for the removal of clauses that could protect you if you need to back out of the sale
* Buy investment grade – avoid buying in a flood zone or under a flight path and aim for a good school catchment zone or desirable neighbourhood within the suburb you are buying in
* Insurance – check what it will cost to get the property insured and make sure you can afford adequate coverage
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