Rentvest, then chase the dream

What a great position to be in, Alecia and Hamish: you have built up a great deposit and with Hamish’s skills in construction and Alecia’s artistic flair you are able to look at renovating and restoring properties and growing your wealth.

My loan assessment indicates you have enough to buy a home for about $630,000 or an investment for $580,000 with one of the big four lenders. Some lenders, such as CBA and ANZ, will look at the last year’s self-employed business finances (but you do need to have an ABN registered for two years). Other lenders in this situation will typically take the lower of the last two years. So you need to be mindful of the lender you approach and their policies; it would be easiest to put a mortgage broker on the task to steer you to the right lender.

You do have a higher borrowing capacity with other lenders but they will not use more than the lower of your incomes (Hamish’s), even with addbacks for depreciations and one-off purchases. As you have indicated, your borrowing ability is a lot less.

HECS will reduce your borrowing capacity (by reducing your income, as it is shown on your payslips), as will Alecia’s super contribution. For now, Hamish is below the threshold to pay HECS. Payments for Alecia will reduce your borrowing capacity by only a small amount and if you choose to pay it off completely then it will put your plans on hold for years.

A purchase at the top of your borrowing capacity will deplete all your funds and even eat into the buffer that you have set aside, and if you become a one-income family in the future you would want to make sure you can cover your mortgage without financial stress. So this price point, although tempting, could create problems down the track.

I understand that you have spent extensive time looking on the NSW Central Coast for a home, having ruled out the South Coast and the Blue Mountains due to travelling time. With that in mind,

I think that for the moment you may need to relinquish the great Australian dream of buying a home first and buy an investment property. Being a rentvestor gets you the best of both worlds – I did this for 10 years while building my portfolio.

This strategy makes you geographically agnostic and allows you the freedom to look across Australia for a purchase. I would suggest you look at not just where your money can buy you the best property in the best area but also where there is a high yield, to reduce your out-of-pocket expenses. Hobart seems to tick the boxes (hence the flock of investors who have purchased there) but as you suggest many are on Airbnb. Apparently, there are over 2000 listings, and any changes, as we have seen in NSW, to how this shortterm stay system plays out could leave you with a property that can’t be rented.

With all this in mind, I would limit your purchase price to about $550,000. Look again at the Central Coast, this time as an investor, or Brisbane, within 15km of the CBD, not in the outer, lower socio-economic areas. Do a quick cosmetic “repair” renovation and leave the full “rejuvenation” with a new kitchen, bathroom, etc, until you have the funds.

Remember that to a carpenter everything looks like a nail, so just because you want to renovate doesn’t mean you need to do it now. Build up your buffer for the time you are out of work and concentrate on the best area that will grow in value and in an area where there is pricing disparity between renovated and unrenovated properties, then plan the full renovation in the future.

To help you out on locating and renovating, I am giving you access to my Your Property Success Club. The courses, private Facebook group and monthly Q&A sessions will help clear up a lot of these questions. You will also have access to our new Location Masterclass with the suburb selector software that will give you a framework and suburb information to quickly assess where to buy.