Questions and answers for owner-occupiers, first home buyers, upgraders and downsizers.

March, 2018

Can I invest my way into a first property?

The simple answer is yes you can, and a recent report from one of the leading banks showed that almost 10% of home buyers are investors who haven’t bought a first home.

Known as “rentvestors,” these first-time buyers are opting to secure an investment property first, while concurrently renting a home. Typically, the rental home is located in an area that appeals to the rentvestor whether it’s closer to their jobs, the beach or other lifestyle attractions.

Rentvesting often appeals to expats working overseas, who have longer-term plans to call Australia home. Buying an investment property first also attracts those who have longstanding home ownership plans, with many rentvestors moving into the property at some point in the future. Tellingly, many rentvestors are buying houses rather than apartments, which is possibly a nod to future family plans.

First and foremost, rentvesting is a valuable way for building wealth. And like any buyer; you must start with some research. Seek out a hidden treasure suburb in one of our capital cities or a booming regional town that seems to offer the prospect of long-term capital growth. Maybe the government is investing in improved local public transport, schools, hospitals, universities and other amenities.

At the same time, as you need decent cash flow from your investment, seek out a first property that produces the best rental return possible. If you buy an apartment as part of the strategy, maximising cash flow will also involve weighing up the strata costs. Therefore, it might be best buying into older apartment blocks that don’t have gyms, lifts or swimming pools.

As a rentvestor, you can claim the ownership costs as tax deductions. These expenses include interest repayments, property management fees, strata levies, landlord insurance, and depreciation.

Where these expenses outweigh your rent, the current tax laws allow you to offset these losses against other income such as your wage or salary. This strategy is called “negative gearing.” Unfortunately, if some politicians get their way negative gearing will go. The end of negative gearing will cut off yet another avenue for many first-time buyers considering a rentvesting strategy to help them into a first home.

What are the benefits of trading down to a smaller home?

Also known as ‘down-sizing,’ trading down involves selling the family home and relocating to a more manageable alternative. If you have a mortgage, you can also downsize your loan repayments.

Trading down can mean moving to a smaller home close to your current address or shifting to an entirely new location with more affordable real estate prices. Think here a move from a capital city to a major regional or coastal town.

The bottom-line is that downsizing should free up some capital currently tied up in your home. Moreover, with the excellent run, many Australian real estate markets have enjoyed over the past five – six years, the timing is helpful if you’re considering this strategy.

While freeing up some equity can be an attractive proposition, downsizing to a cheaper home could affect your Centrelink entitlements. Your age pension depends on your assets and income. Therefore, the extent of the Centrelink benefits you can claim may be impacted by a property sale. So, be sure to consult your accountant as part of your downsizing decision-making.

If trading down means moving to a new region, town or suburb, the trick is to do some preliminary research before you proceed. This fact-finding might involve taking a holiday to a new location – at which point you can investigate the local amenities such as hospitals, schools, transport and leisure activities. Downsizing is a significant decision, so it’s important to arm yourself with as much information as you can before making a move.

As part of research, be sure to talk to a local Raine & Horne agent, who will be able to help with the features and benefits of the downsizer locations under consideration.