What options are available when you want to get on the property ladder but the location you want to buy in is out of your reach financially? In this article CRAIG WILSON, CEO of PiC Group, shares a Rentvesting strategy that his own daughter used when faced with this property buying dilemma.
There has been an increasing amount of discussion about ‘Rentvesting’ in Sydney, but in recent years there are also quite a few ‘Rentvestors’ in the Brisbane area as well.
With social trends pushing back the average age of when people are settling down and having children, it’s becoming more common for people to want to get in to the property market. The issues is that many CAN’T afford to buy where they want to live.
So, for my children (for example) and many other people I know, they choose to buy in areas they CAN afford, and then rent in the area that suits their lifestyle.
The Great Australian Dream of home ownership was once common aspiration of all Australians, however, as we move into a more consumer driven and convenience-based society, the definition of this dream may have changed somewhat.
Property buyers have been weighing up the decision to either buy their first home or an investment property.
As with any large decision such as a property purchase, there are pros and cons for both.
For my eldest child, she bought her first property at 22. To be honest, she was still living at home which was very easy on her bank balance and there was no need for her to move out any time soon.
But we knew that she really wanted to get into the investment property game like we had.
She knew that when she did eventually move out, she would want to live in closer to the city, however, there was no way she could have afforded to purchase there at the time.
Now the general rule of property is that it doubles every 10 to 12 years, so the aim is to have as much time as possible in the market for it to double more than once, or maybe even 3 times.
The only way to do this was to get in early. So she did.
An opportunity came up in an area that she wouldn’t live in, but the numbers were good.
There was Council infrastructure going in, and it was right next to a hospital, a main highway, a university and plenty of schools.
To this day, her property hasn’t been a week vacant in 8 years, although credit has to go to a wonderful property manager who always places good tenants and ensures the property is looked after.
Buy somewhere you can afford, and other people want to live and then rent somewhere else closer where you want to live.
And you can bet that if you are renting in closer to the city – the rent will be far cheaper than the mortgage and the body corporate.
My daughter chose to build brand new properties in the areas where she could afford, because she knew they came with warranties which meant she didn’t really have to worry if something went wrong in the first 6 months. This gave her less maintenance, and high depreciation.
It was her way of building assets and making her money work whilst not knowing where she wanted to purchase or live whilst also waiting for her money to grow so she could afford to live where she wanted.
And these investment properties also had the added benefit of being quite tax efficient.
Only buy for the right reasons. If building a property investment portfolio does not interest you, then don’t buy just because other people do it.
My daughter still managed to undertake some travel and go out on the weekends, but she wasn’t travelling every year or going out for breakfast every morning.
The fact is that to get ahead you need to be prepared to be strict with your money and focus on the longer-term goal that you’re trying to achieve.
Craig is the founder of PiC Group since 1993 and SiNC Surveys, and a successful private investor in his own right, coming from a background in the insurance, financial planning and real estate development industries.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.