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New endangered species: first homeowner Millennials?

Posted by Paul Wilson

The recent Household, Income and Labour Dynamics in Australia (HILDA) survey showed a pronounced slump in home ownership in the state’s hottest property markets – Sydney and Melbourne.

The report stated that the proportion of homeowner households in NSW has fallen steadily since 2001 to historic lows with Melbourne showing similar declines.

Nationally, the decline has been most pronounced among households aged less than 45 years old, indicating it’s first homebuyers who are missing out.

It’s said that fewer than half of all Australian adults are expected to own a home in the next few years compared 71.4% in 1966. So what is a first homebuyer to do?

If you want to become a homeowner, your first step is to actually get comfortable with being a renter. 

It sounds strange - given that the tradition of first home ownership has always been part of the Australian psyche - but competitive markets, the high prices of capital city locations and the time it takes to save up a deposit means that we need to take a different approach.

On its own, paying rent may seem futile if you’re looking to get ahead, however renting can be a good financial move when applied as an effective investment strategy.

This strategy is better known as rent-vesting.

In essence, rent-vesting means living where you want to live without the price tag of owning the property (i.e. loan repayments, insurances, rates, body corporate fees, maintenance, etc.), while generating income and building equity from a lower-priced property in another more affordable location.

In other words, first homebuyers should be looking to purchase an investment property in a cheaper location outside the capital city areas.

The income generated in rent from this investment property can then be used to pay down the mortgage on the property and start building an investment portfolio.

The time it takes to save up a deposit for a property in a more affordable location will be significantly less than the deposit for an inner city location.

And you can still live in your preferred location - where you work, and where your friends, family and networks are.

There are many outer metropolitan locations, key areas in other capital cities and maybe even some select regional areas in Australia that are booming thanks to infrastructure and development improvements, a growing population and job opportunities.  

But you need to choose the location wisely. Just selecting a location on affordability alone could cause you a whole lot of other problems in the future. 

Remember you still need the property to have sustainable growth for you to leverage in the future.

By looking further afield, you can secure a great investment property – providing high returns and capital growth prospects – for a cheaper price.

Rent-vesting allows you to get your foot on the first rung of the property ladder. And once you’re on the ladder, it’s just a step-by-step process to start working your way up.

After you’ve secured your first property, over time you’ll be able to leverage the equity in this property to expand your assets.

Using the equity in your property gives you access to funds to leverage into a wealth creation strategy that wouldn’t be possible if you didn’t have your first property.

Essentially, if you’ve secured the right type of property, you will be able to leverage this to add more properties to your portfolio. 

The equity you build will allow you to purchase your own home in the capital city/region of your choice – it just won’t be the first step on your property path but rather a mid-to-long-term destination.

The key is to have your money in the market at all times.

Rent-vesting creates a more affordable and flexible lifestyle that allows you to pursue your career goals in the city, while also building your wealth through investment.

There are always opportunities in every challenging situation. Negotiating the property market is complex but there are ways first homebuyers can get on the property ladder and start climbing to the top.

To find out more if this option is for you, book in for a complimentary strategy consultation with Certified Property Investment Adviser and director of We Find Houses, Paul Wilson.

Call 1800 600 890 or email to discuss how you get on the pathway to home ownership. 

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