A NEW breed of young first homebuyers — dubbed “rentvestors” — are taking advantage of Perth’s bargain property market to make their first home purchases investment properties.
One in four WA first homebuyers are purchasing their first homes as investment properties, the highest rate in the country, according to statistics from Mortgage Choice.
It comes as a white paper by agency LJ Hooker labelled the “rentvesting strategy” — which sees young people continuing to live in rental properties while becoming landlords themselves — the fastest growing trend among generation Y buyers.
Joyce Property director Graham Joyce said the trend was being driven by young buyer’s desire to live close the city but also get their foot in the market.
“The place they can afford to invest in might not be the place they want to live, most young people want to be close to the city or their place of work, but they can only afford a home further out of the city,” Mr Joyce said.
“By renting while also investing they can live in their dream suburb, but also still be earning money on their investment property … with rents and prices down there’s probably never been a better time to do it.”
M Residential director Laura Levisohn said with most young investors able to negatively gear their properties it was often cheaper for them to invest before they purchased a home of their own.
She said savvy buyers would do exact calculations to compare their costs as owner occupiers versus investors.
“The current generation are investment focused and want a build a portfolio before the dream home,” Ms Levisohn said.
“They get all the tax benefits of owning an investment property and the incoming rent will cover their mortgage.
“What will be interesting to see is whether the increase of so many people doing this, it could be what actually turns the rental market around again.”
Investor Edge director Jarrad Mahon said many buyers were purchasing homes with their first homebuyers grant, living in them for the required six months, before making them investment properties.
“It’s a growing trend especially for those building in the outer suburbs and want to get the $10,000 grant, but would prefer to live closer the city themselves,” Mr Mahon said.
He said there was also a growing number of young people choosing to buy investment properties while still living with their parents.
With Perth property prices falling $15,000 in the last quarter and more than 15,000 properties on the market, agency heads are warning sellers to price their homes realistically.
Newly elected REIWA president Hayden Groves said there was more opportunity for buyers to bag a bargain.
“REIWA data currently show that roughly 60 per cent of sellers are prepared to discount on the asking price to seal the deal, and where that happens the average discount is around 6 per cent,” Mr Groves said.
TWO HOMES AT THE AGE OF 23
SHE’S only 23, but while most people her age are racking up the credit card debt, Lauren Lovelace is fast on her way to becoming a property mogul.
Instead of splashing her savings on travel or shopping, Ms Lovelace bought her first home as an investment property — a one-bedroom apartment in East Perth when she was just 20.
Now with a second investment property under her belt, a four-bedroom home in Bassendean, Ms Lovelace gets the best of both worlds by renting a riverside property in Maylands and will soon be taking advantage of the current market to upgrade to a new rental in Scarborough.
A sales executive at Colliers International, Ms Lovelace said “rentvesting” helped her get her foot in the property door.
“I actually wouldn’t be able to afford to live in either of my properties, because without the rent I get from them I would have trouble covering the mortgages, investing makes it a lot cheaper,” Ms Lovelace said.
“I was also able to use the equity I built from the first property to purchase the second. Both have good capital growth and rents. I’m much more focused on growing my portfolio than buying a home to live in.
“A lot of my friends think about investing as impossible, but it pays off long term.”
TIPS FOR BUYERS IN THE CURRENT MARKET:
1. Consider older homes on big blocks within 15 kilometres of the CBD. With more than 15,000 properties on the market, those that don’t have the best presentation are often being overlooked. However large blocks with city proximity can have the best long term capital growth.
2. Think rezoning. Many of the council’s are currently undergoing changes to their zoning. If a property has subdividable potential down the track this will immediately add value- even if you don’t want to subdivide yourself.
3. Long-term capital growth is key. Areas that area currently oversupplied, but in the past five years have had good capital growth offer good buys. Mount Pleasant, Shenton Park and Applecross are all currently experiencing median price drops of more than 15 per cent for units.
4. Get pre-financing this will allow you to act with certainty and desperate sellers will be more likely to drop their price for the promise of a quick sale.
5. Negotiate on price not conditions in the current market it’s the perfect opportunity to buy a home below asking price. But you’re better off negotiating on the price than adding conditions to the sale, such as the request for items to be fixed. This will annoy the sellers and they will be less likely to drop the price.
TIPS FOR SELLING IN THE CURRENT MARKET:
1. Price realistically: When about to put your home on the market get quotes from at least three different agents. Don’t automatically go with the agent provides you with the highest price, they may be exaggerating to get your listing. Ask each agent to provide you with examples of comparable homes they have recently sold.
2. Presentation: Buyers in this market can afford to be picky. If a property looks unkempt the only buyers that will be attracted are bargain hunters. Remember buyers often do unannounced drive bys so the properties exterior needs to be kept immaculate even if you don’t have a home open scheduled.
3. Create excitement: In an oversupplied market, you want to put pressure on buyers to act. Using an auction or set date sale is a good way to create urgency about your property.
4. Be prepared to spend on marketing: In a falling market you can’t expect to keep your property a secret. Make sure you have a proactive marketing campaign, this should add to the overall sales price you achieve.
5. Upgrade to an advantage: The current market can work well for upgraders. If you are thinking of upgrading it usually works best to sell first so you can potentially make a cash offer.