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Rent-vesting and 3 other paths to home ownership in Australia

It doesn’t always have to be a rent vs. buy decision. Rent-vesting is a strategy that lets you do both. And it’s just one of a few alternate pathways to buying your own home.

Keen to get on the property ladder but buying the home of your dreams feels out of reach? It’s not always possible to buy the perfect house straightaway, but that doesn’t mean you can’t be a homeowner. 

 

Home ownership is the quintessential Aussie dream. But there are pros and cons of buying property as there is with renting. When you rent, you have more flexibility in terms of where you live, and where you invest or save your money. But your rent money will continue to be an expense and won’t contribute to building your equity or long term wealth, as mortgage repayments might. 

 

When you buy, you not only gain stability, but generally you’re also growing your wealth in the long term. Essentially, it is a forced saving. As the property value increases and you pay down your home loan, you build up equity in your property, which can be used in different ways. But of course, there are several costs to think about - from the upfront deposit and other purchase costs such as stamp duty, to the ongoing mortgage repayments and various other running costs. 

 

Taking all this into account, if buying property feels like the right investment strategy for you, here are some alternate paths to home ownership that could help you get your foot in the property market sooner.

 

Try rent-vesting 

You live in an inner city suburb, all your friends are here and work is nearby. But property prices in your current neighbourhood mean owning a home feels elusive. Well, you could become a rent-vestor.

 

What exactly is rent-vesting? It’s when you continue to rent where you want to live, but invest in property somewhere else that better fits your budget. 

 

On one hand, there may be lifestyle benefits to remaining a renter where you want to live, and by investing in property at the same time, you are starting to build wealth. On the other hand, you will continue to make both rental payments as well as mortgage repayments, so you need to make sure you’re on top of your cash flow. 

 

There are some additional costs to think about as well. As an investor, you will have upfront costs of buying investment property, as well as ongoing maintenance costs, strata fees and council rates. Ideally, your income from the rental property should cover the costs as well as the mortgage payments, so you’re not out of pocket. 

 

And there are tax implications to becoming an investor. You could claim depreciation tax benefits on your investment property, which can translate into savings1. It's important to speak to an expert and crunch the numbers to be sure it's the right financial decision for you. You can read our article on investment property depreciation to find out more.

 

If rent-vesting sounds like a good way to get on the property ladder, explore our investment home loan options.

 

Look beyond the capital cities

If there’s one seismic change that has come into society post 2020, it’s the normalisation of remote working. Which means, a ‘tree change’ or ‘sea change’ is no longer the exclusive preserve of retirees - more and more people are making the shift into regional Australia from big cities like Sydney and Melbourne.

 

Lower house prices, more space, less traffic, relaxed lifestyles and close-knit communities - what’s not to love? Generally, your money can go further when it comes to regional real estate, so you may be able to enter the property market sooner. 

 

But of course it’s a huge shift. Not only is it a lifestyle change, the local infrastructure can be quite different from that of big cities, and you may be further away from friends and family. So you need to do your research and think carefully about whether moving to regional Australia is the right choice for you.  

 

Renovate a fixer-upper

Instead of waiting until they save up for the perfect home, some first home buyers choose older properties that need a bit of fixing up instead. This way, they can buy a property in an area they want to live in, for potentially a lower cost. 

 

Whether you’re buying as an investor or an owner-occupier, a renovation can be a great way to update a property and increase its value. But remember, renovations can also be expensive and time-consuming, so it’s important to be realistic about how much it is going to cost before you buy, and budget accordingly. 

 

If you plan smart, you could gradually renovate your way to an as-good-as-new property, and customise it into your dream home. 

 

Get mum and dad to help 

If you’ve been saving up for a deposit but home ownership still feels out of reach, a family security guarantee could help you enter the market sooner. How exactly? Let’s understand a couple of things first.

 

Ideally, you want to have 20 per cent of a property’s value as a deposit, so your loan to value ratio (LVR) is 80 per cent or less. If you don’t have that amount, you could still get a mortgage, but you would need to pay Lenders Mortgage Insurance (LMI), which obviously means a higher cost for you - potentially making that property purchase unviable. Remember, there are additional upfront costs such as stamp duty to budget for as well. 

 

But, the family security guarantee2 provision means that even if you don't have enough for a 20 per cent deposit, your parents can act as guarantor for the remaining amount, thereby saving you from paying for LMI. This means your parents being the guarantor would leverage the equity in their own property (or cash savings) as security on the loan. It’s pretty technical and there are some risks to consider, so it’s worth chatting to a legal expert before you dive in. Here’s some of the pros and cons you can read to find out more.

 

Depending on the guaranteed amount, as your LVR goes down, you could potentially also benefit from lower interest rates and be able to borrow more. But that would be contingent on your financial situation and ability to service the loan. 

 

So, whether you’re getting your parents to give you a leg up; opting for a fixer-upper; looking at regional areas; or becoming a rent-vestor, these are four alternate options that can make owning your home that little bit easier. 

 

Things you should know

Conditions, credit criteria, fees and charges apply. Credit provided by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.

1. The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and their interpretation.
 

2. The guarantor should consider the risks associated with the Family Security Guarantee, primarily that if the borrower defaults on their loan, the guarantor is liable to pay up to the maximum of the portion of security they have put forward as a guarantee. You will be required to seek independent legal advice before offering to guarantee a loan. Credit criteria apply to the assessment of the adequacy of any proposed guarantee limit. ​

 

Offer available on all loans eligible under the Family Security Guarantee, for purchase or refinance of owner occupier or investment property. Note that for investment properties, the borrower must not have ownership of any other properties at the time of application, and for owner occupied properties a maximum of one other property may be owned which does not have sufficient equity to provide a security. For new Family Security Guarantee Home Loan applications received from 23 October 2020. Family Security Guarantee can be provided by parents or legal guardians, siblings, and children. Equity access, owner builder applications, Line of Credit and Bridging Loan products are not eligible under the Family Security Guarantee. Other Exclusions may apply. Not available for the purposes of debt consolidation, owner builder construction, cash out, or addition of a security guarantee to an existing loan. $150k minimum loan size applies. Credit criteria, fees and charges apply. Offer may be varied or withdrawn at any time. Full eligibility criteria on the Family Security Guarantee is available on request. 

 

This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice. Credit provided Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.