With about 30% of all Australians now living in a rental, it’s clear “renting is the new owning”.
Why renting is the new owning

Census data shows that since 1991 the rental population in Australia has grown from 26.9% to 30.9%, and homeownership has dropped from 68.6% to 65.5%. Also, almost as many Aussies now rent as own their property outright.

LJ Hooker’s head of property investment management Amy Sanderson says there are pros and cons of renting.

“Renting often allows you to live in an area where you live but can’t afford to buy into,” she says.

“It can allow you to enjoy a lifestyle that would otherwise be unachievable if you were servicing a mortgage.

“Renting also allows you to live in a property without the same running costs as owning – no repairs, maintenance, council rates or levies,” Sanderson says.

But renting doesn’t have to exclude people from owning a property, she says.

“Rentvesting” – buying an investment property in a cheaper location and renting a home elsewhere – offers a way into the market.

“A tenanted investment property can help you service a mortgage, puts you on the property ladder and allows you to claim appropriate tax deductions.”

There are downsides to renting, though. “You obviously can’t make changes to the property without the permission of your landlord,” Sanderson says.

“But there are other ways to put your impression on your property through standalone photo frames, furniture and other individual items that don’t impinge on the property.”

Long-term renting often suits people, Sanderson says. What tenants look for though, differs.

“Whether you’re fresh out of home, a couple in their 30s or a family of four, you’ll be looking for different features in a property,” she says.

What appeals to renters can change over time through the addition of a family member, a relationship breakdown or outgrowing a property, she adds.

Good, reliable tenants should understand their value in the marketplace, Sanderson says.

“Long-term renters need to know that if they pay their rent on time and maintain the property as though it was their own, they can be tangible assets to their landlord.

“I know landlords who have decided against increasing the rent at lease renewal time because they’ve been pleased with the conduct of tenants,” she says.

Also, suppose an existing tenant refuses to pay more rent. In that case, the cost of re-advertising the property and time spent searching for new tenants often negates any increase in money, Sanderson explains.

“When a tenant feels at home, this is often where the magic happens – long-term tenancy, with rent, paid on time and, property well cared for. Also care and consideration for the neighbours, which is great for everyone involved.”

Renting for the first time with bad credit and what you can do

Renting with friends is an exciting stage in life, but it can be a challenge if you are a first-time tenant or have bad credit.

Landlords are looking for the best candidate possible for their property, and most will carry out a credit check on potential tenants. 

Unfortunately for first-timers, having no credit history is often viewed on par with a bad credit history.

This is because it is difficult for landlords to assess whether you pose a financial risk.

Having no credit history or a black mark against your name could lead to you being overlooked by owners, meaning you may struggle to find a rental.

But don’t worry, there are a few things you can do to improve your appeal.

Move into a share house. 

Landlords are not the type to take a chance on a student fresh out of school or university.

One of the best ways to combat this is to move into a share house. 

Even if it’s only for a short period, this will help you prove that you are a good tenant and can be relied upon to pay rent on time consistently. To benefit from this arrangement, though, you’ll need to make sure that you officially sign onto the lease as a co-tenant. 

Get a roommate

If possible, try and get a property with a roommate who has a solid rental record.

If one of you has a solid rental background, it will help convince a landlord that you are less of a liability.

It is even better if your roommate is willing to sign the contract for a property solo and put you on the lease as a co-tenant at a later date.

Create a financial buffer

If you have the funds, offering to pay extra rent upfront will help alleviate a landlord’s concerns you will miss rent.

Tenants are commonly asked to pay one month rent in advance.

Try offering six to eight weeks to create a giant safety net.

This will be beneficial for prospective tenants with a bad credit history.

Character references 

A glowing reference can go a long way.

It is best to submit at least two strong letters of recommendation with your rental application, attesting to your trustworthiness.

Make sure the references are from a good source, such as an employer or community leader, as a friendly letter from mum and dad is unlikely to make an impact.

Get a guarantor 

Talking of parents and relatives, check if they are willing to co-sign your lease or guarantee all your rental payments.

This is common if you are moving out of the home. It allows your parents to offer a helping hand without infringing on your independence.

This will also reassure the landlord that the rent will be paid, regardless of what happens.

Your guarantor will need to sign a contract.

This guarantee often includes a promise to cover any outstanding cleaning costs or damage at the end of the lease.

Raise the stakes

If you are struggling to get a rental, offer to pay a slightly higher amount of rent as a last resort.

As long as it is within your budget, you can add an extra $10 to $20 per week to the rental fee.

Every week, it is a reasonably minimal change, but over a year, it will add between $520 to $1040 in rent revenue.

This bonus will be a beautiful offer to a landlord and challenging to pass up.

Location

If you are renting for the first time with no credit or bad credit, where you want to live will play a significant role in determining the success of your search. 

In competitive rental markets, you will face more difficulty getting a house.

So, perhaps look further afield to improve your chances.

Once you get an excellent rental history, it will be easier to move back into the suburbs you initially had set your heart on.

Clear your debts

Whether you like it or not, your landlord is likely to investigate your credit history to make sure that you will be a reliable tenant.

It is best to pay any outstanding debts before making a rental application.

If you cannot square everything you owe, try getting a personal loan and consolidating debts, which looks less alarming on paper.

Phone bills and credit cards should be among the first to be paid off. But be wary of predatory lenders that offer low-level loans to get you back in the black, as these often charge very high-interest payments, and if you fail to pay, you will have another black mark against your name.

Move on from your past.

Sometimes a bad credit history is the result of issues out of your control, such as losing your job.

Handing over proof of income, along with a letter of recommendation from your employer, will go a long way towards proving your reliability if your circumstances have changed. 

If you have turned your credit situation around, it also pays to submit bank statements showing personal savings.

Seven rental application hacks that work

However, some tricks of the trade can help give you an edge in the application process.

Read these tried and tested hacks from real renters.

1. Get in quick

Have everything you need for your application ready to go before you inspect the property.

“Some inspections can be incredibly competitive, and you’re in a market with a dozen other shining candidates – it can come down to timeliness,” Sydney-based renter Rebecca shares.

If an agent accepts applications in-person, have all your documents handy and your application filled out and ready to hand over on the spot. If the applications are being submitted online, ensure all your relevant documents are saved in an easy-to-find file on your computer, ready to attach or upload and send off as soon as you’ve inspected.

“I once left an open inspection and saw a couple filling out their application on their laptop in their car!” Rebecca notes. “I didn’t get the house.”

2. Be organised

The key to timeliness? Organisation.

Little things like unclear file labelling or accidentally leaving out a vital supporting document can make or break an application.

Remember, the owner might be syphoning through 50 applications – they aren’t going to chase you for a document everyone else has supplied.

This can be a crucial step if you’re applying with multiple housemates.

3. Work on your presentation

Show up to an inspection looking like a model tenant.

“I remember going to an inspection where there were at least 20 other people, mostly students,” says Holly, a young renter based in Hobart.

“While most of them were dressed like students – a little dressed down, a little grunge, if you will – I dressed up a bit like I would for a job interview. I looked a bit more polished, perhaps a bit more responsible, and I think the agent noticed. We had a chat at the inspection, and I’m 99% sure that’s what got me that house.”

4. Add a cover letter

Adding to the last point, Melbourne renter Emma says she always treats rental applications like job applications – which means including a cover letter.

“I always include a cover letter explaining my circumstances and finances, [which can be] particularly important if you are self-employed and have various income streams,” she says.

“I’m a single parent. I get child support from the kids’ dad, Centrelink payments, plus running my own business. I also have shares which I mention in the letter too.”

5. Talk yourself up

Don’t be shy to submit a couple of extra documents with your application that show you would be a stellar tenant.

Get written references from former landlords or your employer. If you’ve received any awards or recognition for your work in the community, pop them in. Do you run a great blog or do volunteer work? It can’t hurt to mention!

6. Make a relationship with your agent

Leigh from Sydney, now a homeowner but with 15 years of rental experience behind her, used this tactic to land a few rental homes, most notably an apartment in beachside Coogee.

“In a competitive market like Sydney, every high-quality house is easily going to get more than half a dozen decent applications,” Leigh says. “This means, if you want to get that fantastic place, you have to separate yourself from the crowd in a way that doesn’t rely on just the application.

“I found the best way to do this is to spend time at the inspection hanging out with the agent and just chatting with them. The agents will give the place to someone they like, and if you can get them to like you, they’re more likely to choose you.”

7. Follow up

Finally, if it’s all about standing out, gently follow up after submitting your application.

Keep it friendly and simply ask the agent or owner what the field was like, what they were looking for in a tenant and if there’s anything else you can do.

Once you get approved, it’s time to start putting things in place. Pay your bond quickly, organise your move, get your utilities hooked up and consider getting rental insurance to protect you and your belongings in your new home.

And if you’re ever unsure of the advice you’re getting from various providers, talk to friends and family and listen to what they have to say.

How to maximise renting before buying

So how can you get into your place as quickly as possible while still paying the rent? We asked a financial adviser for his tips on what renters can do to increase their chances of buying.

If there are large credit card debts, it could be detrimental to your borrowing ability.

 

The challenge of saving a deposit

According to Martin Speiser from Masu Group, the biggest obstacle for renters who want to buy is saving a deposit, particularly in big cities where rents are high.

“Renters are spending a lot of their disposable income on rent,” Speiser says. “This makes saving very hard.”

“It is also tough for young people as lifestyle is a priority – so it’s hard to tell a twenty-something not to go out and party or travel,” he says.

Despite the challenge, Speiser says saving a deposit is critical.

“Banks no longer lend 100% of the purchase price, so without a deposit, you cannot buy,” he says. “It is also more difficult for parents or others to go as guarantors of loans these days”.

But while saving a deposit should be the main focus of renters who want to buy their property, there are other things to keep in mind.

Look at the bigger picture.

Speiser says changes to the first home owner’s grant and the limiting of stamp duty concessions in some states doesn’t help.

This has often happened at the very same time as property prices increased.

This means it pays to spend time looking at the bigger picture and how this could affect your ability to buy property, whether positively or negatively.

“As prices increase, affordability reduces, and the deposit required increases,” Speiser says.

Speiser also says that, far from being a benefit to new home buyers, low interest rates make saving harder.

“You would think low-interest rates would help buyers,” Speiser says. “However, if you are trying to save in a bank and interest yields are 2%, that’s not a lot of growth you are getting.”

Bank policies on lending have also been shifting – not only the Loan to Valuation Ratio (LVR or how much they will lend on the value of the property) but also their willingness to lend in certain areas where they feel there is oversupply, like Docklands in Melbourne.

“If they do lend, it may be at lower LVRs,” Speiser says. “And the lower the LVR, the higher the deposit needed.”

Prepare yourself financially

Speiser’s advice to those looking to purchase property is simple.

“Save, save, save, and try not to rack up personal loans and credit card debt,” he says. “If there are large credit card debts, it could be detrimental to your borrowing ability.”

And be pragmatic about how you can help yourself achieve your goal.

“Many young people also choose to stay at home longer to save,” Speiser says.

Research the property market

Speiser says that, while most people know where they would like to live, you should always thoroughly research the property market and be open to exploring the benefits of new areas. Consider essentials such as access to public transport, schools, shops and other amenities, as well as any negatives.

And use sites like https://dynamicresidential.com.au/ to check recent sales prices and go and visit properties currently on the market to see what your money buys you.

Take a long-term view.

If you can’t afford the area you like or the property that suits your lifestyle, another option can be to buy an investment property. Speiser says this can be a good idea provided you have a long-term time frame.

“Generally, property investing should be done with an eight to ten-year time frame,” Speiser says. “I have seen many cases where people who rent and buy investment properties are better off long term than those buying a home and paying it off.”

But this is not a one-size-fits-all approach to getting on the property ladder, and Speiser cautions that many factors need to be considered, including the type of property, the potential for growth, income and the effect of negative gearing.

There’s also the option of buying off-the-plan. While Speiser says it is not without its risks, it can help you keep saving a deposit while getting a foot on the property ladder.

Be informed about the process

Speiser says renters should also spend time researching the process of buying their property and be fully informed about the costs – from stamp duty to legal or conveyancing fees.

For instance, prospective buyers should be aware that banks will not lend on the purchase price; they lend on valuation.

“If the valuation comes in lower than the purchase price, then more of a deposit is needed,” Speiser says.

 

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