Expert Reveals A Growing Number of People Are Forgoing Buying Their Own Home Due To Housing Affordability Crisis

Earlier this month, the Reserve Bank of Australia announced that interest rates would once again be rising by 0.5 percent, making the new cash rate 1.85 percent. This recent hike marks the historic fourth month in a row that the RBA has raised interest rates- increasing the pressure on homeowners already struggling under mortgage stress due to the recession and rising cost of living.

The interest rate hikes are also putting a hold on the plans of many aspiring first home buyers, who will no longer qualify for the loans they need to buy houses in the areas in which they want to live. After being priced out of the property market in major capital cities, one option which many Aussies are considering is ‘rentvesting’- the trend of renting where you want to live (to be close to work, family, and the lifestyle you like) and buying an investment property in an area where you can afford to purchase a property.

Lloyd Edge, Founder and Director of Aus Property Professionals, says that “Today if you’re making the average Australian wage of $78,000 a year and you decide to buy a $1.2 million house, that’s 15 times your salary. This shows the difference in scale between incomes and house prices in the 2020s compared to the eighties or nineties when the average house price was only four times the average yearly salary. Skyrocketing house prices and inflation have really changed things, so if you’re an average income earner and your big goal is to buy your dream home, you’re going to have work up to it through savvy investments.”

Adding, “Many of my clients come to me initially looking for their first home, however, after we have a strategy session and assess the full range of options available, often they’ll choose to keep renting and buy and investment property instead. With interest rate hikes and no foreseeable end to the housing affordability issue, rentvesting is a good choice for many people. A positively geared or cashflow positive investment property has multiple benefits, like helping you build wealth, generate income, and increase your borrowing capacity. With interest rates going up, it’s important to make sure you’re borrowing under your maximum capacity, leaving yourself a buffer for when rates rise even higher. You need to make sure you’re assessing your borrowing capacity each month, as your circumstances will change depending on what the RBA decides.”

Lloyd is also the author of the best-selling property book Buy Now: The Ultimate Guide to Owning and Investing in Property. In the book, he lays out the strategy for utilising rentvesting to grow your property portfolio and buy your dream home. Below are some of Lloyd’s top tips for rentvesting:

  1. Target high-growth regional areas: Regional areas are great for rentvesting, as the property prices are usually cheaper than the major capital cities, and the rental yields are higher. Look for areas that have a growing population and are supported by multiple industries. Other key things to note is whether there’s any increase in government spending in that area, any major transport or infrastructure being developed, or any universities or hospitals. All these factors will add value to your investment property and ensure the likelihood of capital growth.
  1. Have an exit strategy: To secure your dream home in the 2020s, you will probably need to build an investment portfolio and set an exit strategy, which will mean selling some of your properties to pay down the debt on others. Ultimately it will be your exit strategy that helps you secure your dream home.
  1. Look for a value-add opportunities: The trifecta we look for in investment properties is equity, cashflow and growth. To achieve this, we often recommend that our clients buy a property with some value-add opportunity, like a subdivision, development, or renovation. Buying an investment property with this sort of potential will help you build up your equity and afford a better home down the track.
  1. Clarify your goals: Investing without clear goals or a strategy is pointless, as different tactics will give you different results so it’s important to specify what you’re aiming for. Think not only about the short-term, but also the long-term and where you’d like to be in 5, 10 or 20-years time. This will influence where you buy and what your strategy is. For example, if your long-term goal is financial security when you retire, it makes more sense to invest in a number of properties than to spend all your money on one property, so you don’t put all your eggs in one basket.

Lloyd concludes “Many people are being scared off buying a property right now due to the current market, however with the right strategy it can be the perfect time to get your foot onto the property ladder through rentvesting, and use that as a way to purchase your dream home sooner.”

This article was sourced from a media release sent by Kathleen Quere of Agent 99 PR


5 Simple Reasons “Rentvesting” Will Help You Reach Financial Freedom

According to Realestate.com.au’s renter research, more than 1/3 of Australians rent in more than 2.5M properties in Australia. Kurtis Pirotta, Rent Specialist from REA, has identified that 8% of tenants currently renting own an investment property. With interest rates historically low, an increasing number of renters are becoming buyers – with 50% of tenants looking to buy in the next 5 years.

Here are 5 good reasons why more and more people are actually “rentvesting” (purchasing a property with the idea of renting it out):

You could qualify for generous tax breaks

Property investors often qualify for tax breaks such as negative gearing. This lets you offset the interest you pay on a home loan against your income so that you pay less tax. You may also be able to claim the depreciation on your property asset, especially if you buy a new property.

It can be very cost-effective

Because someone else is paying off your mortgage and you’re receiving potential tax breaks, you could purchase an investment property for less than you think. For instance, our analysis shows you could buy a property worth $650,000 for just $76 a week (out of pocket) if your income is $70,000 a year.

A new revenue stream

Eventually, as the rent on your property grows, you’re likely to start earning more than you pay your rent every month, meaning, you’ll have a new income stream – passive income.

You could start building a property portfolio

Over time, as you pay down your loan and the market rises, you’ll build equity in your investment property. You can then use this as a deposit on your next property, giving yourself the chance to grow an entire portfolio.

You can keep your current lifestyle

Because you’re not living in the property, you can buy in an area you can afford and stay in your current location so that your lifestyle stays exactly the same.

And if you’re a tenant looking to own your own home, the Federal Government’s First Home Loan Deposit Scheme can support eligible first home buyers purchase a home sooner providing a guarantee that will allow eligible first home buyers on low and middle incomes to purchase a home with a deposit of as little as 5 percent (lender’s criteria apply).

Information for this article has been sourced from The Property Investors Alliance.