In South Australia, the dream of owning a first home can often seem out of reach due to affordability issues. This challenge is particularly pronounced for young professionals, including doctors, who are just starting their careers. Understanding the differences between investment properties and owner-occupied properties can provide a strategic pathway to entering the property market.
An investment property is purchased with the intention of earning a return on the investment, either through rental income, future resale, or both. In contrast, an owner-occupied property is one that the owner lives in as their primary residence. Both types of properties offer the potential for leveraged capital growth, especially when held over longer periods, which can be a significant advantage in building wealth.
The benefits of holding property are numerous. Property is a tangible asset that can appreciate over time, providing capital growth. Additionally, property investments can be leveraged, meaning you can borrow money to purchase the property and potentially earn a return on the entire value of the property, not just the amount you invested. This can amplify your returns over time. Moreover, property historically has been less volatile than other investments, such as shares.
What is Rentvesting?
Rentvesting is a strategy where individuals rent a property to live in while owning an investment property elsewhere. This approach allows potential homeowners to buy in more affordable areas while living in locations that suit their lifestyle or work needs.
Rentvesting can be particularly appealing for those who find it difficult to afford a home in desirable areas. By purchasing an investment property in a more affordable location, they can benefit from property market growth and rental income. This strategy also serves as a stepping stone onto the property ladder, enabling buyers to eventually upgrade to a more desirable owner-occupied property. Banks generally consider the expected rental income from the investment property, which can help in securing a loan even if affordability is an issue.
There are several reasons why rentvesting might be an attractive option:
- Financial Flexibility: Rentvesting allows you to live in a location that suits your lifestyle or work needs while investing in a property that makes financial sense. This can be particularly beneficial in high-cost areas where purchasing a home may be out of reach.
- Stepping Stone: It provides a way to get onto the property ladder without having to compromise on your living situation. You can start with a smaller or more affordable investment property and gradually work your way up to owning your dream home.
- Tax Benefits: Investment properties can offer tax advantages, such as deductions for mortgage interest, property management fees, depreciation and maintenance costs. These benefits can improve the overall return on your investment.
- Rental Income: The rental income from your investment property can help cover the mortgage payments, making it easier to manage financially.
Property Pathway of a Doctor
Doctors often follow a unique property pathway due to their career progression and financial circumstances. Typically, a doctor might start with one property and upgrade two or more times throughout their career. This journey is facilitated by several unique benefits available to medical professionals:
- Reduction or elimination of Lenders Mortgage Insurance (LMI): Some lenders offer special deals for doctors, including the waiver of LMI, which can save thousands of dollars.
- Favourable lending policies: Certain lenders can consider the future earnings growth of medical professionals, allowing for higher borrowing limits based on projected income rather than current earnings.
Doctors also benefit from their typically high and stable incomes, which can make it easier to secure financing for property purchases. Additionally, many lenders offer specialised loan products for medical professionals, which can include lower interest rates, higher loan-to-value ratios, and more flexible repayment terms.
It’s important for doctors to consider their long-term financial goals and how property investment fits into their overall wealth-building strategy. By taking advantage of the unique benefits available to them and adopting a strategic approach to property investment, doctors can build a robust property portfolio that supports their financial goals.
How to Learn More
At Bartons, we offer comprehensive support to help you navigate the property market. Our team includes experts in lending, accounting, and financial planning, ensuring a holistic approach to your financial needs. We can provide up-to-date property valuations using RP Data and can assist with obtaining an Approval in Principle, so you are ready to act quickly when the right opportunity arises.
We invite you to schedule a face-to-face consultation with our team. This personalised approach allows us to tailor our advice to your specific circumstances and goals, ensuring you make informed decisions about your property investments.
Our consultations often involve not only our lending team but also our accounting and financial planning team. This integrated approach ensures that all aspects of your financial situation are considered, from tax implications to long-term wealth-building strategies. We can help you structure your loans in the most effective way, taking into account your current financial situation and future goals.
This general advice has been prepared without taking account of your objectives, financial situation or needs. You should consider the appropriateness of this advice before acting on it. If this general advice relates to acquiring a financial product, you should obtain a Product disclosure Statement before deciding to acquire the product.