Millennials who delay buying their first home are putting themselves at huge risk of being long-term renters.
But complaining about a lack of affordability isn’t going to get them anywhere: instead, they need to starting turn attitude into action.
Fact is: the number of first-home buyers is dwindling.
This is a massive concern, when you consider a home is the biggest asset the average Australian has when they retire.
But now, for the first time, we’re facing a generation of lifetime renters.
Millennial renters could easily spend over $1.25 million on rent during their lifetime.
And in the end, they won’t have anything to show for it!
Rent money is empty money.
It’s throwing money into paying off someone else’s mortgage.
The alternative is investing your money into an appreciating asset.
To do this means getting out of the rental hamster wheel and buying your own home.
Now, I can see two key reasons why young people are delaying a home purchase.
Millennials are either struggling to enter the market because they can’t afford it, or because they aren’t prioritising the task of ‘owning a home’.
I can understand why our younger crowd are on the fringe.
The market is expensive, and growing more so, particularly in white-collar hubs where the jobs are.
Added to that, there’s also a negative presumption – heightened by media hype – that it’s not possible for young people to get a foothold in property anymore.
But that’s not always true.
There are several avenues available to our Millennials that make it possible to enter the market.
I also firmly believe that it’s vital for Millennials to prioritise real estate ownership – despite the planning and sacrifice that it takes.
The earlier, the better.
Why? Because delaying only perpetuates the unaffordability cycle.
Prices won’t suddenly drop significantly in the next year or two, making it easier to jump into real estate.
Every year of delay equals lost capital growth, a step lower on the ladder, and thousands of dead-end rent dollars.
In an ideal world, your first home should be your own.
You have to live somewhere for the rest of your life, so the person who should ideally own that property is you – not your landlord.
A home is the biggest asset you’ll own and over time as it increases in value and you pay down the mortgage, you’ll be able to unlock equity that can be used as seed capital to buy further (investment) properties.
Come retirement, you’ll own your own home – worth considerably more than the purchase price and several investment properties that generate enough income to live comfortably.
But if you can’t afford to buy your own home in your desired area, what do you do?
First, get to the bottom of the reason why haven’t bought you.
1. Is it because you’re too picky?
If you haven’t yet bought a home because you’re feeling priced out of the market, it might be time to loosen the ‘dream home’ criteria.
Very few first homebuyers debut in inner city Sydney.
Once you’re on the property ladder, you can start working towards your ultimate home – but for now, just get on the first rung.
2. Is it because you have grand expectations?
A smaller home, or one further from the city, or a townhouse instead of a family home, could put you in a more affordable price bracket.
Lifestyle ‘wants’ might have to take a backseat for a while.
3. Is it because you can’t afford it?
Yes, there are major money hurdle involved when saving a deposit, getting loan approval and paying for a mortgage. But that doesn’t mean it’s impossible.
So your first action is to start saving today, even if you’re not sure when you’ll buy.
For example, if you’re an apprentice earning first-year wages, you might not qualify for a loan – but you can start putting aside $50 a week for a deposit.
Assuming a four-year apprenticeship, you’ll have $10,400 saved by the time you’re entering the workforce as a qualified employee.
I would also strongly advise that you maximise your savings by keeping your money in an account with a high compound interest rate.
Saving – and paying a mortgage responsibly – takes some sacrifice.
People don’t often like to hear the ‘s’ word, but it goes hand in hand with moving forward towards security and independent wealth.
Culling some of the major expenses, like dining out, shopping sprees, holidays and brand new or second family cars might be a necessary step towards getting on top of your finances. You might even need to make bigger sacrifices such as renting a cheaper place while you save.
What about Rentvesting?
If buying your own home still seems out of reach, consider buying a home for someone else instead.
‘Rentvesting’ has become a buzz word lately.
It’s a brilliant strategy for those who either can’t afford to buy where they want to live.
Essentially, rentvesting is buying an investment property where you can afford in order to get on the property ladder, while you continue to rent where you want to live.
That way, you can be close to employment or lifestyle factors you enjoy, while someone else pays off the mortgage for you.
Rentvesting is also a strategy that suits those who want to buy a property but need flexibility to move around for employment.
One of the big differences between buying a rental property and your own home is the tax benefits.
Investment properties boomerang money back to you through depreciation, negative gearing, and other deductible expenses that can really boost your financial standing to lenders.
It could be the extra weight you need to tip the scales.
You might choose an investment property in an affordable bracket; you might choose a home you’d like to live in one day but can’t afford to just yet.
Either way, having a tenant paying down your mortgage while you rent elsewhere means you’re holding a tangible asset that’s progressively growing in value.
The earlier you start in the property market, the more time, leverage and compounding will work for you.
Also, buying a property that’s within your means will make saving for a deposit an easier and more achievable task.
Using equity to springboard into purchasing other properties is also a proven and time-honoured strategy used by many of Australia’s 1.8 million investors to grow wealth.
Millennials aren’t an exception to the rule.
Times have changed, but the method is the same: save, sacrifice, and have a plan that sets you up for a financially secure future.
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