The great Aussie dream used to be a house on a quarter acre, but with wages at record lows and eye-watering house prices, a housing crisis has developed.
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 canny homebuyers can apply to get on to the property ladder.
Following the report from 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 for those that are living with their parents, they 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.
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 as well as benefiting from some tax advantages of depreciation and negative gearing which can help with paying off the loan.
What do you need to be aware about when applying this approach?
Besides doing some hard research about where you want to buy and finding a property that has mass tenant appeal, you need to make sure that you can afford it. Factor in all the costs, plus upfront fees like stamp duty and conveyancing fees, and make sure you have a decent cash flow to cover some of the bad months. To help you, use any handy rent vs buy calculators that are available online to do your calculations.
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 need to live in that home for at least a year.
Remember there is always a way
Rentvesting is a reaction against housing affordability, and although it might not be an approach for everyone, many could benefit by using this approach to buy their own home and build wealth. Speak to your financial advisor if you need more details.