Can 'rentvesting' open property door to property market?
WHEN and where can I afford to buy?
You're certainly not alone if this is a question you're grappling with given the surge in property market commentary, shift in property prices and sentiment surrounding housing affordability in our nation's capital cities.
While the great Australian dream of owning a home is still very real for many, it is evolving and people are taking different home-buying pathways to get their foot through the property market door.
This includes tactics such as "rentvesting”.
Rentvesting is when an aspirational home owner purchases a property, within their budget, to lease out and rents a property where they would prefer to live.
This is popular among people who work in the CBD but want to own a property in the suburbs.
While there are different views about renting as an investment strategy, rentvesting allows you to maintain the lifestyle you want now, while also starting your investment portfolio.
Of course, as with any financial decision, it's important to look at all the facts and make a decision based on what works best for you. It's always a good idea to discuss your financial profile with your financial institution or mortgage broker, to gain a further understanding of how much you can afford to borrow and repay.
One of the key things to consider is that if, for whatever reason, you stopped receiving regular rental payments for your investment property, could you afford to cover your loan repayments and rent?
And with the shift in interest rates for investor loans, it's important to consider potential rate changes when working out what you can afford to buy.
A 1 per cent interest rate rise, from 5-6 per cent, on a variable $300,000 investor loan, could cost nearly $100 per fortnight more in repayments.
Another thing to consider are the tax implications.
While you may be able to claim interest payments on your loan as a tax deduction, you may also be liable to pay tax when you sell the property.
Make sure you research the suburbs you're looking to buy in to get an understanding of what properties are available, the suburb median pricing and nearby facilities like schools, shopping centres and parks.
Finally, once you become a property owner, it's important to remain engaged with your finances and seek additional support and information if you need it.
- Lynne Sutherland, Suncorp Bank