Young Australians have perhaps never had it tougher when it comes to breaking into the housing market than they do today. Continuing affordability issues, rising rental prices and the threat of steadily climbing interest rates is making it increasingly difficult to save for a deposit and tackle the prospect of hefty monthly mortgage repayments.
As a result, more and more Gen Y’s are opting to stay at home with mum and dad or move into share accommodation to make life a little easier…financially speaking.
But there is another way to approach this problem and while it might mean compromising your own home ownership dreams in the short term, it doesn’t mean entirely foregoing the purchase of a property you can call your own.
According to a recent report in the Brisbane Times, buying an investment property as your first foray into the world of real estate is becoming more common among younger Aussies and can be an excellent way of getting your foot into the proverbial property door and building a profitable asset base to get ahead.
Director of MAP real estate Michael Furlong did just this. He rented until last year when at 39 years of age, he purchased his own home. Prior to this he had already bought and sold 18 properties as an investor.
He says, “The way you win is to have all of your money work for you throughout that phase that you’re still renting. The term I use is a ‘professional renter’.”
Furlong says this approach to property ownership allows you to rent a nicer home than you could afford to buy when just starting out; “we were living in a $700,000 or $800,000 property and only paying $550 a week (in rent).”
And renting he says, affords a more flexible lifestyle for young people who might not want to settle down until well into their thirties (as many are now doing), rather opting to move every two to three years for lifestyle or employment reasons.
Furlong says of investing first and becoming a home owner second, “I could almost guarantee that the home someone would buy in their late 30s would be much better than in their 20s – and they’ve got these assets off to the side. Ten years of full tax benefits, gearing and depreciation will set you up for the future far better than [buying a first home earlier in life].”
Strategic property advisor with KlearPicture Treasha Lim, says this strategy goes against the ingrained teachings most of us are raised with. Our parents drill the importance of home ownership into us throughout our lives, telling us that rent money is dead money and the only debt we should have is the mortgage on our very own slice of the Great Australian dream.
Lim has managed to build a portfolio of 6 properties herself, teaming up with friends who also chose to remain as tenants while investing.
“My rent has never exceeded $850 a month and even though my pay was rising a lot every year, I didn’t change my spending,” she says. “With some people the more they earn the more they spend, whereas the more I earned, the more I invested.”
Young renters like Lim are a shining example of how a long term investment strategy that utilises the benefits of time and compound growth, far outweighs squirreling your money into a bank account or blowing your entire budget on a big home of your own that you can’t necessarily afford.
Lim says, “If you leave $45,000 in the bank and you’re only earning 5 per cent, then you earn $2250 a year and you have to pay tax on that at the end of the day. Whereas if I use that $45,000 on a 10 per cent deposit on a $450,000 property, let’s say it grows at 6 per cent, then you’re growing your net worth by $27,000 a year not $2000 a year.”
One of the reasons this is such a tempting prospect for those who might otherwise struggle to hold onto property is that while you continue to rent, a fellow tenant will be paying much of your mortgage for you!
Lim says that once the rent is paid and the depreciation benefits and taxes of property investing are accounted for, owning an asset such as housing often equates to the same amount you would pay each month on a small car loan.
For these young, savvy property investors, the inevitable end goal is their own perfect dream home which will be all the sweeter because they can really afford it.
Growing a portfolio as a tenant means overcoming some common ideas that many of us are taught growing up like; debt is bad, rent is dead money and it’s too risky and too expensive to buy property. But with the right planning and research, all of these perceived problems can easily be overcome.
It’s about acting sooner rather than later, saving rather than spending (for your deposit), setting yourself achievable property investment goals and sticking to them and putting off that immediate gratification of having all of those shiny new toys right now. If you can manage some self discipline, patience and persistence, you just might find that you can have all you want sooner than you think.
Source: Brisbane Times
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