Big mistakes people make with rent-vesting and how to avoid them
Rent-vesting can help first home buyers and investors get their foot in the door, and begin to grow their property and lifestyle dreams.
In basic terms, rent-vesting is simply renting where you want to live for either work, lifestyle or convenience reasons and investing somewhere else around the country in a more affordable or profitable location.
Now the old adage of "rent money is dead money" still rings true if you're not putting anything into an income-producing asset, or not using those funds for something else that's going to create financial wealth for you. But if you're rent-vesting, it can be an extremely good way to begin creating a passive income without sacrificing your lifestyle.
I personally have been a rent-vestor for most of my life, and like with most great things, there are pros, cons and risks to consider with this style of property investing. I wanted to touch on some of the biggest mistakes that can be made and how you can avoid them.
Mistake #1: You choose to move out of home too early
Getting out on your own sounds very, very appealing when you're in your early 20s, but my advice to the young is stay at home!
Have you heard of the term "free-vesting"?
If you're in a position to do so, live with Mum and/or Dad or Aunty or Uncle for as long as you can!
This is one of the best ways to get ahead financially from an early age and, without the added expense of renting, you will have greater borrowing power and serviceability.
That said, I think it's also a great idea to give Mum and Dad a few dollars for the privilege of staying with them – you'll also get used to regular weekly amounts coming out of your bank account (even if they decide to give it back to you!).
Mistake #2: You jump into it blindly with no real thought, no strategy and no considered plan
This is a huge one. Make sure you do the research and have a clear strategy in place before you pull the trigger.
If you don't have time, engage an expert to do this for you or talk to a professional who knows what they're doing. Knowledge and experience is power, and without it you could create yourself a world of pain.
Mistake #3: You succumb to peer pressure and out-dated views
The traditional "great Australian dream" is to buy your principal place of residence with the view of living in it. Don't be surprised if your friends and family have negative views on this style of investing, even if you crunch the numbers and it proves to be a better long-term financial decision for you.
The best thing you can do is listen to the real experts over the arm-chair experts – emotional advice can actually work against you rather than for you.
Mistake #4: You don't engage a property manager
Saving money by holding the reins and doing it all yourself is a great learning curve, but being a landlord comes with a big dose of reality and can be an emotional rollercoaster – especially if you're doing it for the first time or your property is potentially in another state.
Find an experienced property manager (again, do your research) and let them shine. This will eliminate a lot of the heartache and hassle for you.
Mistake #5: You don't have a financial buffer
As a landlord, you will still need to factor in up-keep and maintenance of the property (think hot water system replacement, general wear and tear, air conditioning leaks, etc.).
It is your responsibility to maintain the safety and functionality of the property. If your rental income does not cover these expenses, it is essential that you make sure you have enough cash to cover these things as they arise.
When it comes to property, there really is no one-size-fits-all scenario, but if you want to work out what the best options are for your situation, the moral of the story is to get educated and do your research!
Keep your mind open and get creative when it comes to fulfilling your property dreams. There are so many different ways you can get into the market if you think outside the square. It really is such an exciting journey and with the right thought process and tools, it can work for just about everyone.
John Pidgeon is the director and head property coach at Solvere Wealth and Envisage Property.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.
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