While the beautiful harbour glistens invitingly and the city hums with opportunity, Sydney is a notoriously expensive market to buy into for a generation of first home buyers. As a Property Analyst, I completely understand how unattainable this can seem. I wanted to share with you my story and strategy on how I plan to buy into the Sydney market in the future using a rent-vesting strategy.
My husband and I are young professionals who married in 2019 and found ourselves expecting our first baby in 2020, when our thoughts turned to nesting and establishing a home. Our biggest challenge was that my husband needs to be close to his job in the city and our family and friends are all based in its surrounding suburbs. We simply could not afford to buy a home in Sydney, unless we wanted to commit to a 2-3 hour commute each day, so we found ourselves renting close to work and friends instead.
However, Sydney is not the cheapest rental market either, and many young families and professionals find themselves falling into a similar predicament where saving for a deposit for your first home becomes even slower, as your hard-earned money disappears into someone else’s pocket. We decided rent-vesting was the strategy that would best suit us in the short-medium term. It’s an exciting way to save for a deposit for our dream home in Sydney.
Put simply, rent-vesting allows you to rent in a place you want to live while investing in property and building wealth in a place you can afford. The idea is to find a property with high rental returns and low vacancy rates, ideally in an area likely to experience house price growth with an overall positive cashflow. If the rental income from the property is greater than the cost to hold the property, then the property is termed ‘positively geared’, i.e. more money will be going into your account each week than is going out.
The property therefore becomes self-sustaining, in that, you don’t need to dip into your everyday account to cover any costs. You also benefit from the additional positive cash flow above and beyond these costs which you can use to supplement your Sydney rent, put into savings, or ideally, back into your investment property to pay down the mortgage faster. This way, as you continue living and working, your loan will gradually diminish, your equity will increase thanks to savings, positive cash flow from the property, tax minimisation; and if you buy well, hopefully, some growth in property prices.
Once I save up enough equity, I will borrow against it to purchase a second investment property. I plan to continue building my portfolio for the next 10 years, then my strategy will be twofold. I want to have the option to sell a property or two and bring the money back to Sydney to purchase my family home. I know one thing for sure, and that is that positive cashflow through self-sustaining property gives you flexibility and options. The second stage of my plan is to continue to invest, by accessing the equity in my family home to continue acquiring investment property and building passive income ready for retirement. Of course, this is just my rent-vesting strategy and there are as many unique paths as there are people and circumstances.
The message I hope you The Key Take-Away is that no matter your financial position, or stage of life, property is attainable if you have the right help and strategy. The earlier you get into property, the more time you give it to grow in value. So while it might seem strange that a young couple such as ourselves are considering cash flow for retirement, I have peace of mind in my plan and 30 years of growth ahead, with the endless possibilities and security that brings.
Regardless of where you are at the moment, if you have a full-time job and a good savings history, we might be able to help you start planning your investment strategy. Give us a call to start a conversation. You might be surprised at what is possible.