A parent’s drive to protect and nurture their offspring is an unstoppable force. Humans are, quite simply, programmed for it. From the first moment those insidious little buggers look into your eyes, you are smitten. Suddenly, dreams of early retirement, that Lamborghini and quiet holiday getaways at your beachfront unit must be set aside. You’ve now decided on a life of extreme fatigue, and the ability to identify a Bugaboo baby carriage at 50 paces.
That primal instinct to protect, support and love our kids has us championing their futures, and is the reason why a large swathe of the population is now concerned about housing affordability.
I think there are strategies which will not only help young folk into a home, but also set them on a path to financial independence.
The problem defined.
Now I’m not certain if you’ve noticed, but the property market is pretty much booming at the moment. If this is news to you, welcome back above ground.
A look over the latest numbers from CoreLogic tell a sobering tale for anyone who’s delayed buying real estate in the past couple of years. Across the combined capitals and regionals for the year to 31st August, property values rose 18.4 per cent and continue to increase at a rate of 1.5 per cent ever month.
While I can hear homeowners cheering in the background, that’s a staggering disappointed if you’re a young person hoping to buy a property. Think about it – you’re trying to put together a 10 per cent deposit for a modest half-million-dollar home in Brisbane, but every month you must add at least another $750 to that deposit goal just to tread water – and that’s without compounding the gains!
A tough ask for anyone, let alone those at the start of their careers or just out of higher education.
What the cool kids do
There is an ‘it’ crowd of young buyers getting creative about the market. These cool kids are hip to what’s happening, and are forging a new path (see how ‘now’ I am with young person’s lingo?)
Firstly, there’s co-buying. It can be with parents, extended family, friends and even, in some cases, complete strangers you may have met on some app.
Co-buying sees you share the purchase of a property with others. You buy as either ‘joint tenants’ or ‘tenants in common’ and, depending on which, can own equal shares or determined percentage shares of a property.
My hot tip – get legal and other professional advice before launching into this. If things go awry in the co-owner relationship, it could be an expensive break-up.
Then there’s the ever popular ‘rentvesting’ approach. This sees youngsters buy an investment property in an affordable suburb (usually on the cities fringe). They then rent a home for themselves in their desired location. It means they have a foot in the market and don’t have to compromise on lifestyle. It’s a great idea, but your still need deep pockets.
Then there’s assistance from mum and dad in securing a loan. Again, the rug rats are dragging on your good nature and innate parental programming to help, the sneaky devils! Financial assistance can be any mix of gifting money through to co-buying or providing property as security to help guarantee a loan.
Accidental investor on purpose
There is one other approach to property ownership and investment that should be shortlisted – and that’s becoming an ‘accidental’ investor on purpose.
According to our own research here at MCG, around one in four property investor became landlords without any prior planning. They simply chose to keep their first home rather than sell when it came time to upgrade.
I think there’s legs in being purposeful about this approach for young buyers today, even during the hot market. It would see them buy a reasonable property as a first home in an affordable location. They move into that home with full knowledge that it won’t be forever. One day, it’ll be the foundation asset of their property investment portfolio.
The upside is that that can take advantage of government incentives and tax breaks for first homebuyers. They can also enjoy the benefits of borrowing money as a homebuyer rather than an investor, which is usually lower interest rates and easier lending terms.
Then, once they’ve done their time, they can use the equity gained to finance themselves into their next home. And there’s no reason they can’t do it again and again as they build their holdings.
Here’s the added bonus to this approach – tax breaks.
Not only will young buyers likely save of CGT to some degree in the future, there’s also smart ways to do capital works to the property and use these to reduce your assessed income tax.
By using a depreciation schedule, you can boost your tax return each year, which means more dough to help you pay down your loan or buy another property.
And you don’t even need to wait until it’s a rental to do the works. Expenditure on your home can be depreciated over many years. It’s an excellent way to maximise the returns while progressively increasing personal wealth.
So, don’t sit idle. Get in there and find a way to be part of the property cycle. Take it from me – a wizened elder with years of experience – very few people ever regretted getting into the market as early as they could.