Rentvesting 4 Things You Need To Know
You may recall in our last blog ‘4 Alternative Ways to Home Ownership’ we spoke about Rentvesting.
Unsure What Rentvesting Is?
Rentvesting – owning an investment property while renting a property in an area you want to live. This can be a great option for those where location & lifestyle are a priority for you, or perhaps even necessary for potential career advancements.
On the surface it can seem quite straight forward way to get into the property market, while still living the lifestyle you want to live. It also gives you the opportunity to take advantage of any potential capital gains now & grow your equity in a property while also saving more towards a future home deposit.
But before you go rushing into rentvesting there’s some important things to know.
What You Need to Know
You May Need A Larger Deposit
Firstly, the deposit requirements for an investment property are generally higher than an owner- occupied home. You see in the banks eyes investment properties are considered riskier & for that reason they require a higher percentage deposit. Typically to purchase a rental property you need a minimum deposit of 40% whereas for an owner-occupied home, depending on your situation, your minimum deposit can range from 5-20% of a property’s value.
Although we do have access to non-bank options or alternate lenders that can help finance a rental property with less than a 40% deposit.
Missing Out on Government Assistance
Government assistance in NZ for house purchases, is focussed on ‘first homes’ which you RESIDE in. So, if you choose to go down the rentvesting track & buy an investment property then things like withdrawing Kiwisavers funds to go towards your deposit, & the Kiwi Saver Home Start grant are unlikely to be available to you.
Although you may be forfeiting some first home buyer’s incentives, on the flipside their maybe some tax advantages depending on your financial situation. We recommend chatting with an accountant & your mortgage broker to see how this may apply to you & they can advise how the recent changes to the brightline test may impact you.
You Need an Investor Mindset
When you purchase your first home it can be easy to get caught up in it all, & perhaps even get emotionally attached to the idea of putting your own stamp on a place. This is great if it is somewhere you can see yourself living longer term, but as a Rentvester you need to have a more pragmatic approach. Make sure the figures stack up & the potential returns will cover your associated expenses. Be cautious in buying a place that ‘needs a little work’ as that little bit of work can end up eating into any potential capital gains that are meant to help you get your ‘forever’ home.
Rentvesting means you’ll be both a renter & a landlord at the same time. With that comes a few extra costs you need to cover. Such as council rates, body corporate fees (depending on the property), insurances, ongoing maintenance, property manager fees & of course mortgage repayments. If you’ve done your research & figures well, as long as your property is tenanted then the rental return may cover the majority of these expenses. However, it is vital you have a contingency to ensure you can cover costs if interest rates rise or you have a period where the property isn’t tenanted or unexpected property maintenance is required.
In the long run rentvesting can be a good option for those wanting to get onto the property ladder sooner rather than later. However, it always pays to speak with a professional who can look at your unique circumstances & work out if it’s something that will actually benefit you.