Renting out a property that you own while paying rent to live somewhere else initially seems like a strange thing to do. But “rent vesting” is becoming more and more common, which is due to a mix of financial and lifestyle factors.
Why would you do that?
Gaining entry into the housing market is a key benefit of rent vesting. While 66% of Australian homes are owner-occupied, the percentage for people under the age of 35 is much lower at 50%.
Young adults are increasingly choosing to live with their parents, helping out with a little bit of board while also using a tenant to help pay off an investment property. It might make it possible to buy a house or invest in real estate more quickly than would otherwise be possible.
More and more “rent vestors” are renting homes in desirable suburbs where they can’t afford to buy while investing in a less desirable but potentially more profitable area. The variation in rental yields is what is causing this trend. In comparison to yields of over 6% offered in more affordable suburbs, rents in desirable neighborhoods typically run as low as 2%.
In the opposite circumstance, some people choose to rent inexpensively while purchasing a more expensive property, frequently in the hope that the investment property will experience a faster rate of capital growth.
Then there are those who want or need to move frequently but still want the security that owning a home can bring.
You’ll make it work if you want to.
Despite how appealing the lifestyle advantages may be, rent vesting must also be financially viable. You must be able to afford your rent as well as any net costs associated with your investment property, at the very least.
Long-term, rent vesting also aims to put you in a better financial position than you would be in otherwise, so it’s important to understand the real estate market and form an opinion on price trends.
Additionally, there are a number of tax considerations to keep in mind, both good and bad:
If the expenses for your investment property (interest payments, council rates, insurance, agent fees, etc.) exceed the rental income, or if the property is negatively geared, you may be able to claim a tax deduction against your earned income.
Any excess of rental income over expenses is taxed at your marginal tax rate.
You must use your after-tax income to pay the rent on the home you currently reside in.
While a profit from the sale of a primary residence is tax-free, any profit from the sale of a rental property is subject to capital gains tax.
Please visit the ATO for further advice or seek advice from your licensed Accountant
Is it suitable for you?
Do you like the thought of enjoying the sea views from your rented home while a tenant settles the mortgage on your prime investment in a burgeoning neighborhood? It might be worth investigating. Just make sure you comprehend the idea completely. Although they might not offer advice on direct real estate investment, your financial advisor can serve as a sounding board to make sure you have everything covered.
Preparing a home for sale can mean a lot of different things depending on what state or province you live in, but for the most part, there are 10 basic things that will add maximum value to the final price when you sell it on the open market.
1. Accentuate Curb Appeal
Suzana Wade from Locate Property claims that the most important thing to preparing the home for sale starts with the roadside appeal. The final price of your home can be heavily influenced by how appealing and attractive it appears from the road.
Good curb appeal is key to selling a house as quickly as possible for its highest asking price. “It’s important to make sure that grass is cut regularly, fertilize the lawn, the greener the better, manicure the shrubs and trees, and keep your house looking neat. This is our biggest single tip that amazes Suzana Wade just how often it is overlooked.
2. Remove Clutter
All the clutter has to go. It is amazing how much “stuff” accumulates in a typical home over time and if you were coming to look at it for the first time then you might wonder how anyone actually lives there. Hire a storage unit for a few months and relocate all of the unnecessary items so that we can present the home if the best possible light.
3. Professional Home Staging
House staging involves making your home look ‘lived in’ and inviting, with great care taken to ensure that it appears as if someone really does live there.
The effect of this kind of housing staging can be quite striking on buyers, lots of potential buyers will visit your house just to see how nice it is. Home Staging really “sells” the home.
4. General Home Maintenance
Keep your property in good shape for resale by maintaining it regularly and keeping it looking nice will minimize major problems later on. You don’t have to do extensive renovations or anything expensive to increase the value of your home, but you will have to maintain it regularly.
5. Get a building and pest inspection
Before you list your home for sale, ensure you get a building and pest inspection done upfront. This way you can address any problems or issues that may arise before bringing the buyers through.
6. Remove the Building and Pest Inspection clause from the contract
Now that you have the report, ensure that the agent distributes it to all prospective buyers so that they can make their offers with all the relevant information but it is a common tactic for buyers to use the use report to negotiate the final price once they have control of the property. Give them the report, remove the clause. Simply put, the final price will always be higher. You’re welcome.
7. High-Quality Images and Video
Yes, you want to put your best foot forward and actually show prospective buyers what it is they are buying. These days almost everyone that is selling their property has pictures and video online so be sure that yours is of high quality.
8. Virtual Tour
Home buyers want to be able to ‘touch and feel’ the home that they are potentially purchasing. Virtual home tours today allow them to do just that. You can now tour your home online, and if you have a smartphone you can even walk through the property as well with just the tap of a button! Services like Little Hinges https://www.littlehinges.com.au, Australia’s largest Virtual Tour Agency has seen a 300% increase in inquiries since 2020 thanks to COVID.
9. Simple Renovation
Homebuyers are happy to pay more for improved features, extra bedrooms, or larger living areas. By adding a bathroom or renovating something like the kitchen you can achieve an average of 10 – 15% more for your property than if it didn’t have these improvements.
10. Appointing the right agent
Home sellers should appoint an agent that is local and has experience in the area. It’s best to keep this simple by just sticking with agents that have a track history of results that include achieving high prices for their clients. With the market and approach to selling changing over the previous years, marketing is a lot easier with focusing on a campaign online. Do your research, look a the agents with the best results and highest sales volume in the area where the property is located.
Every investor who plans to purchase a property for rental purposes has a goal: to generate cash flow from rents and increase the value of their investments over time.
Here are our top ten ideas on how you can do some simple renovations to add maximum value to your investment.
Any of these renovation ideas can be done by yourself or a handyman, saving you from additional expenses.
1. Add an ensuite to two bedrooms in a 3-bedroom house
If you own a 3 bedroom property such as terrace houses and old apartment blocks with only 1 bathroom, adding an ensuite to one of the bedrooms can increase your rental yields by $100 or more per week. Property with an ensuite is always in demand.
The cost of the renovation should be between $5000 and $8000. An increase in rental yield will be immediately available with this investment paying for itself in less than 12 months, not including any increases in rents during this period.
2. Change the kitchen
If your current kitchen is not modern or of low quality, replacing it with a new one will help to increase the value of your property significantly and add rental yields quickly. A quality kitchen costs between $6000 and $10000 and will immediately add an extra $50 – $200 per week or more to existing yields of homes. Bunnings is a great source of low-cost kitchens and will be significantly cheaper than engaging a cabinet maker.
3. Install new carpet and repaint the interior of the house.
A good quality carpet for a 3 – 4 bedroom house costs about $1500 – $3000 and will pay for itself within about 6 months depending on increases in rental yields.
New carpet will also make your property look modern and well-maintained, increasing its value. Painting the interior is the least cost-effective way to increase rental yields but still costs only about $1500 and pays for itself in less than 9 months.
4. Add a pergola or open pavilion to your backyard
This is the most expensive renovation on our list, costing between $5000 and $15000. However, it will quickly add another $100 – $200 per week or more to rental yields and increase your property’s resale value significantly.
5. Install a new fence with gates at the front of your house
A standard 6-panel wooden fence costs about $3000, with a wrought iron one costing only a little more. A new fence will increase the value of your property and help to separate tenants’ outdoor activities from those in your backyard.
6. Install a new entry door that will increase security and add value to your property
A good quality, secure front door costs about $1000.
7. Fix or replace broken tiles in the bathroom/kitchen areas of your house
This cost-effective renovation involves changing old cracked tiles with new ones, the modern fresh feel will immediately add $50 or more to weekly rentals.
8. Add a laundry/utility room to your house
Property with a utility area is almost always in demand and this renovation will increase the value of your home by 20% or more. Creating an internal laundry area also means that tenants save on additional costs associated with washing at the laundromat.
9. Install Air Conditioning/Heating
Depending on where your investment is located, Add air conditioning and/or heating to your property. Property with excellent insulation and efficient heating systems is always in demand during the winter or summer months, particularly thanks to COVID, tenants that now have greater flexible work arrangements and will appreciate the comfort.
10. Double Up Your Potential Income
If you have an old garage or shed, convert it into a studio apartment and rent it out separately, if allowed by the council. This is the most profitable renovation on our list. Property with additional units can easily add $150-$300 a week to your tenants’ rents and also increase the value of your property significantly.
Final word: Although this article has listed only the top 10 ideas for renovating your investment property, there are many other small renovation projects you can do to increase