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The great Aussie dream used to be a house on a quarter acre, but a housing crisis has developed, with wages at record lows and eye-watering house prices.

Sponsored post: Savvy Finance

This crisis has meant that many first-time homebuyers are being squeezed out of the property market. But there is hope in the form of rentvesting, which savvy homebuyers can apply to get on to the property ladder.

Following the report from the Australian Bureau of Statistics (ABS) that the average home in Australia climbed $12,100 in just the last quarter to $679,100, it makes it even tougher to afford real estate.

Many lack the income or do not have their parent’s help to muster up a home loan deposit; this leads many to rent instead of buying their own home. But as people rent, they aren’t building equity through monthly home loan repayments.

A promising solution to overcome the affordability crisis is rentvesting.

But what is rentvesting?

Ideally, people would like to buy in areas nearer to work and amenities, but in most cases, the only affordable areas are further away, in the outer suburbs. This is where rentvesting comes in handy.

With rentvesting, you buy a home where you can afford, for instance, in the suburbs, then you rent a place to stay in the area you want to live or choose to stay with your parents. This approach works well as it’s still cheaper to rent than to buy, and those living with their parents can save on rent.

As Savvy CEO Bill Tsouvalas said, “Rentvesting is a good option for many young people who want a lifestyle that can’t be afforded in the traditional sense, but still allowing them to build wealth in a solid investment property and to optimise on their tax situation.”

“There are many different types of home loan options, so it’s important to compare them before you make your choice,” Mr Tsouvalas commented.

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But why rentvesting? What are the benefits?

Using this approach, you can get into the property market faster to build equity, and the sooner you do, the better. With numbers released by the ABS that show that house prices increased on average by 1.9% in the last quarter alone, you could build up equity fast and benefit from some tax advantages of depreciation and negative gearing, which can help pay off the loan.

What do you need to be aware of when applying this approach?

Besides doing some hard research about where you want to buy and finding a property with mass tenant appeal, you need to ensure you can afford it. To help you, use any handy rent vs. buy calculators available online to do your calculations. Factor in all the costs, plus upfront fees like stamp duty and conveyancing fees, and ensure you have a decent cash flow to cover some of the bad months.

You can also save on lenders’ mortgage insurance if you put down a 20% deposit or ask your parents to be the guarantor and then apply for a guarantor loan. Plus, you can save on stamp duty if you’re a first-time buyer. Remember, you must live in that home for at least a year.

Remember, there is always a way

Rentvesting is a reaction against housing affordability. Although it might not be an approach for everyone, many could benefit by using it to buy their own home and build wealth. Speak to your financial advisor if you need more details.

Savvy
Savvy

Savvy is an online financial services business that provides home loans, car loans, truck loans, marine finance, equipment finance and insurance services. Savvy considers itself the online hub for finance savvy customers and services clients Australia-wide. The company was founded in 2010 and is based out of Norwood in South Australia. Savvy says its vision is to bring Australians the best automotive, home finance and insurance solutions from all over the market using the latest technology.

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