Rent-vesting, whilst a real estate buzz word is also a strategy many are opting to give a go with the increased costs of living, inflated price of houses and the Aussie desire to live where they want.
According to Anna Porter, market commentator, Principal of Suburbanite and valuer, this is the perfect strategy for first home buyers and families looking to get into the market without the budget to buy their dream home.
“We’re seeing an increasing number of purchasers taking up rent-vesting as a strategy because more and more are finding themselves priced out of the market,” shares Porter.
“So, they invest in more affordable markets and rent where they like to live while their investment is working for them to build deposit power.”
Porter warns however rent vesting does not come without challenges and one of the downsides to rent vesting is that you still need access to a deposit.
“You will need 20% of the purchase price plus stamp duty for your deposit which you can obtain by tapping into your savings or even using your parents’ equity through parent pledge type structures,” shares Porter.
“From here, you’ll need to set a budget for buying and develop an investment strategy that suits,”
“The key component to rent vesting is selecting the right market – you want to ensure it’s a market positioned for good growth in the first 3 to 5 years so you can build deposit power.”
So, what happens next? Porter suggests patience is key while the value of the property increases with the market.
“Remember to pay down as much extra off the loan as you can so that you can build your equity ever faster,” she shares.
“Once you have a good amount of equity, you can sell it to cash out or leverage it to buy your own home,”
“We see some rent-vesters do this 2 to 3 times before cashing out and buying their own home to really double down on their deposit power.”
Anna Porter shares her top tips for successful rent-vesting.
“The really critical component for success here is investing in a growth market that is driven by employment, infrastructure and population growth,” says Porter.
“You’ll want to avoid new or off the plan investments as they have lending risks, are slower to grow in value and can be at risk of oversupply,”
“My final tip is don’t be tempted to sell the property too soon, 12 months is not long enough to build equity in the property market, and you typically need to work on a 3-to-5-year strategy, so be patient.”