Real estate investor and YouTuber PK Gupta has advised aspiring buyers to take a strategic approach to getting their foot on the property ladder.
He explained that while most people are now eager to grab a property and leave renter life behind, they should consider investing in annuity first.
The Consulting by PK founder strongly believes that not only will this strategy allow homebuyers to eventually buy a dream home that will “make them really happy”, but he also argued that people who get the right to rent could also accelerate their long-term wealth. term.
Here are five reasons why Gupta thinks people should rentvest instead of buying a home in today’s market:
1. Savings cannot keep up with rising house prices
Although Mr Gupta acknowledged the efforts of aspiring home buyers saving for a deposit, he said saving “more and more money” would not necessarily get them their dream home.
“It’s unlikely you’ll be able to buy your house with just your savings,” he said.
He explained that while you’re saving for a down payment to buy a home in your dream location, prices could rise at a faster rate than you can save.
In addition, Mr Gupta said access to certain property markets is currently inaccessible to most buyers due to their exorbitant prices, particularly in cities such as Sydney, Melbourne and Brisbane.
“Let’s say the property you ultimately want to become your dream home costs $1.5 million, $2.5 million, or even $1 million,” he clarifies.
“Anyway, if you realize that every year you save [X amount]even 10 times that [X amount] still won’t get you your dream home, then you know your odds or ability to buy that dream home is beyond you,” Gupta said.
2. Rentvesting lets you grow your portfolio
Instead of buying a house outright, Gupta recommends continuing to rent while working to grow your real estate portfolio.
“Rather than rushing and making sacrifices in terms of your dream home or place to live, if you continue to rent, you can maximize the return on investment by using that capital or that savings or your borrowing capacity to buy multiple investment properties,” he said. declared.
Mr. Gupta gave an example to better explain his point. “Let’s say you have $200,000 and you can’t buy what you really want to buy in Sydney. You can use that $200,000 to buy three properties in Brisbane or Adelaide, or regional Vic, regional NSW or regional Qld,” the property expert explained.
He also advised not to get sucked into buying properties for the sake of buying, but to buy “where the data is good”.
He added: “If you do this over a period of five to seven years, whatever the case, you can build a portfolio.”
By building a sustainable portfolio, Mr Gupta said, the circle will eventually come full circle and you will be able to buy the property you originally aspired to secure.
“[You] can sell one or two [these properties] because they will all have gone up if you got it right and then use that money to buy your dream house,” he said.
3. Rentvesting can maximize your borrowing power
If you’re smart with your buy-to-let investment strategy, Gupta said you could dramatically maximize the use of your borrowing capacity.
“Your borrowing capacity is much higher when you invest in investment properties with a rental yield than just buying an owner-occupied home,” he explained.
Mr Gupta said someone with a borrowing capacity of $1 million would get more value if they chose to tell their lender that they were buying three properties at $400,000 or three properties at $300,000 per versus buying a property that maximizes borrowing capacity.
“[By] split this capital, split this borrowing capacity to buy investment properties, [lenders] will give you over a million dollars of borrowing power because you are collecting rent,” he said.
By having rental income, lenders tend to allow you to borrow more. “[By] maximize your borrowing capacity, by maximizing the value of your portfolio, when capital growth occurs, you get a better return on investment,” he said.
He further argued that acquiring annuities allows you to accelerate your wealth, which is a much better scenario than “settling” for a property you can afford.
4. Rentvesting gives you freedom and flexibility
Mr. Gupta also acknowledged that most people find that renting is not an ideal living environment.
However, he pointed out that rentvesting also offers freedom and flexibility that landlords are not afforded.
“By renting, you can live in a nicer neighborhood than you could otherwise afford. I have a lot of clients who live in super nice neighborhoods in Sydney, Melbourne and Brisbane, but they rent,” he said. he declares.
He further explained that “although they can never afford a property right now to live [there]they can get that lifestyle by renting.”
He said rents remain significantly lower than mortgage repayments, especially in high-demand areas with lifestyle drivers, including good amenities and reputable school zones.
Mr. Gupta added that a change of perspective could make all the difference. “[It’s] just a change of mentality. I’m a renter, I’m not a landlord, but that’s delayed gratification. Because in 10 years, in 12 years, in eight years, you will have a much nicer dream house than you could have had otherwise,” he said.
5. Don’t just buy your “dream house”
Finally, Mr. Gupta advised not to settle for a property just because prices are falling.
He cited falling prices in the two biggest cities, Melbourne and Sydney. Mr. Gupta explained that even if property values in these real estate markets are falling, there is a good chance that you will still be priced out of coveted and high-priced locations, which may force buyers to settle for the best thing to do for their financial situation.
He said such purchases would be a “bad idea” because you are buying into an area that is actually going down in value.
“Most of Melbourne and Sydney are falling, and they will continue to fall, probably for a year or two or something. And then probably go through a long, steady period of stagnant growth. That’s my assumption,” Mr. Gupta said.
“If that’s true, why invest in an inferior house to live in that you don’t really like anyway when you can use that capital, that savings, that borrowing power to buy multiple investment properties and accelerate your wealth? ” disputed the expert.
With that, he recommended allocating capital to properties with high growth potential. “[As] these investment properties are maturing, they are growing, the fruits are there to be picked, you can sell one or two and buy your dream home which you can then afford in Melbourne and Sydney,” he concluded. .