Doubtful property advice from investment advisers - an example

In one of my whatever happened to <insert name of person met years back> moments, I did some googling and found some history, dissolving business partnerships, records of court cases etc.

As happens one gets sidetracked into unrelated websites. In this case some case studies from financial planners. Case Studies - Smith Wealth Partners

Some advice is encapsulated in one sentence: “Rent where you can afford, buy where you want to live.”

This is assuming 1. You are not investing in IPs first, 2. You need to save up for a deposit, and 3. You hope that house prices in the area you wish to buy don't rise faster than you can save the deposit for. This is justified on the basis of delayed gratification. Also it is assumed that you're not earning much on your savings as high returns (eg sharemarket) can crash and result in losing half a house deposit (or more).

It occurred to me that this is completely contrary to an approach that many low-middle income property investors have used to good effect.

That is "Buy IPs where you can afford, rent where you want to live"

With this approach you are getting into the property market earlier (and possibly enjoy more of any capital gains). Because there's rental income to consider your serviceability is better than if you only had your PPOR. You are exploiting both generally higher yields in cheaper areas (as a landlord) and lower yields in dearer areas (as a tenant). $100k in higher purchase price will buy in a slightly better suburb while $100pw extra in rent will let you rent in a vastly better area due to declining yields. Your commuting costs may also be lower in the dearer area. There's still delayed gratification but in this case it's to do with your PPOR tenure (renting rather than buying) rather than location.

The moral is to beware of one-liners from financial advisers as they aren't necessarily the best approach for everyone. Especially on property topics.

 

I've never heard "rent where you can afford, buy where you want to live"...

I think the second part of they is true to an extent, increasing incomes of people on more desirable areas lead to demand for such areas.

I think people fall into this by default. Renting somewhere reasonable then buying where they think they would like to live..

I still don't think the second phrase is true either "rent where you want to live, invest where it is smart".

This presumes that renting will enable you to save enough for a deposit.

My situation for example, my mortgage is cheaper than renting in my area, Nevermind where I would like to live - Brighton beach for instance.

Also turning your PPR into an IP then renting where you want to live, you may find you are only $100-$150 per week better off..

I don't think there is exactly one correct way to do it, yes I agree - time value of money, compounding effect, getting into the market, but horses for courses!

 

This may not be as silly as it sounds

Strategy: Rent where you live and Buy Investment Properties Strategy: Rent where you live and Buy Investment Properties

Strategy: Rent and Maximise CGT concessions to Pay off the Home loan sooner Strategy: Rent and Maximise CGT concessions to Pay off the Home loan sooner

 

I think the phrase "Rent where you can afford, buy where you want to live" is targeted towards first home buyers not investors. I don't know who these people were but possibly investors were not their target audience. Every business works on a niche market and advertising is targeted to that niche.

It's neither truth or non truth - it's just a phrase that means something to someone in a specific circumstance.

 

Rent where you can afford to save up a FHB deposit....?

 

IMHO successful, talented and client focused wealth creation advisors are very hard to find.

Everyone is an 'advisor' or 'mentor' nowadays. It's ridiculous.

A certain level of self education is essential imo.

 

I think this makes perfect sense, apart from the rent part as I do not like that idea myself.

So if you cannot afford ongoing costs in the place you really want at this point in time, buy it and rent it out, and live where it is cheaper for a period till your able to live there yourself.