Savings.com.au : An expert’s guide to getting out of the rental cycle

First time property investors and Millennial investors feel like the property market has left them behind. But they can break into property if they keep my myth busting tips in mind. Below I chat with Savings.com.au’s Aaron Bell about just that.

An expert’s guide to getting out of the rental cycle.

By Aaron Bell, Savings.com.au, August 18, 2021.

A housing affordability expert is warning young people of the three key assumptions about property ownership they need to shed in order to own their own home.

‘Forever renters’ is a trend on the rise according to housing affordability expert and author of ‘Small is the New Big, Ian Ugarte.

Mr Ugarte believes there are three underlying beliefs that are entrenched in the minds of Aussie Millennials keeping them ‘trapped’ in the rental cycle forever.

Here’s Ian Ugarte’s three beliefs Millennials need to shed:

1. You have to live in your investment property

“People believe they need to live in the house they buy. But there’s nothing wrong with buying a property you have no plans of living in long term, if ever,” Mr Ugarte said.

“Naturally, there are tax benefits to buying and then living in that property, but given so many of us are working from home, there are also tax benefits to running a home-based business from a rented home office.

“Unfortunately, many Millennials believe they have to abandon their chosen lifestyle just for the sake of getting a foothold into the property market.

“But it‚Äôs far better to buy where you can afford to as soon as you can, and then use the investment income to help pay the rent where you do want to live ‚Äì a process known as ‘rentvesting’.

“That‚Äôs because the sooner they get into the market and reap the rewards of capital growth and cash flow, the faster they‚Äôll be able to save for a deposit in an area they do want to live in.”

STUDENT SUCCESS: See how rentrepreneurs Soumen and Chaitali invested $15K and created a gross income of $66K using co-living conversions HERE.

rental cycle

 

First home buyers, buy where you can to get a start, while you rent where you want to live.
2. Grab the government grants for home buyers

Mr Ugarte warned budding homeowners against claiming government grants just because they were eligible for it.

“While it‚Äôs tempting to grab any first home buyer‚Äôs grant or stamp duty relief that you can get your hands on and plan your purchase around that, be aware that not all grants are created equally, and there‚Äôs often more financial gain to be made by being strategic,” he said.

“I‚Äôve seen people use a $25,000 grant to spend $50,000 too much on a property. Not only that, taking up a grant might also limit the way you are able to use the property for best returns.

“And if you don‚Äôt buy your first home to live in, but instead buy it as an investment, many states allow you to access those grants down the track ‚Äì even five or 10 years later – when you do decide to become an owner-occupier,” he said.

3. You can’t have tenants in a property you don’t own

“This third one is a bit out of the box, and needs a genuine entrepreneurial mindset to think through it, but we‚Äôve helped our ‘rentrepreneur’ clients with limited savings get into the market by learning how to legally have their own tenants in a property they don’t even own,” Mr Ugarte said.

“This approach is clearly not well known, but the system can definitely give renters a cash injection when saving up for a deposit.

“Obviously, strict regulations apply to this approach, but those who use it accumulate savings a lot faster to help them move on from renting and into their own home.”

MORE: Learn my top investment strategies for savvy first time home buyers HERE