Rentvesting: A property market hack for first home buyers

Here in Australia there’s an accepted way to buy your first home. It usually involves striving to put together a deposit then buying what you can afford, which will probably be located far out of the city, requiring a long commute to work. Does it have to be this way?

Buying your first home as an investment may just be the solution to your property problems. Here’s why:

Focus on a property’s affordability profitability

Average houses in Sydney cost over $1 million, Melbourne’s not far behind and most of the other capital cities are also fairly expensive. Buying your first home in one of these areas is a massive challenge that will require saving a gargantuan deposit. So don’t.

Buy as an investment instead and you can focus on finding an affordable property in areas outside of the city central, then renting property wherever you’d like to live. Buy further out and you’ll find lower prices and you also may find excellent capital gains.

In fact, data from Hotspotting indicates that there’s at least 25 regional areas where capital gains have sat at, or above 10 per cent a year. Buy somewhere with such a promising capital gain and your investment will quickly increase in value.

Make the most of high yields

Rental yields in Sydney and Melbourne are extremely low – you’ll be struggling to find a property returning over 3.5 per cent. But Residex data shows that property in areas further out of the city, such as Camden in NSW, have higher yields- even as much as 6 per cent.

As an example let’s have a look at what you can do with a yield of 6 per cent. Say you’re paying off a mortgage on a property around the national average price of $632,000 according to the Australian Bureau of Statistics. With a 20 per cent deposit, a loan term of 30 years and an average market interest rate, this will cost you roughly $2,377 a month. Your rental income from your property will net you $3160 a month, leaving you almost $800.

That might be enough for maintenance, to pay a property manager and afford all the other costs associated with home ownership and probably still have some left over. While this is just an example, it reveals the value in buying for profit potential rather than location or personal preference.

Live where you want to

Affording a property in Sydney, Melbourne and most other capital cities is a challenge for most first home buyers in Australia. Therefore they compromise, living far away from work, family and friends and commuting an hour or more to work every day.

With smart planning and strategy, it doesn’t have to be that way. Buy an investment property in one of the regions, or even just out of the city and you can rent in a location that’s perfect for you. That way you can live in the city centre, near family, friends, nightlife and work instead of compromising and living out in the sticks.

As you can see, buying your first home doesn’t just make sense for your bank balance, it makes sense for your lifestyle as well. You’ll avoid all the pitfalls of buying your first home, while still taking that all-important leap up the property ladder.

When you’re ready to take the plunge and invest in property, get in touch with us. An experienced professional will be able to help select the most suitable loan products for you and provide personalised and expert advice every step of the way.