Millennial property investors are finding it tougher than ever to enter the property market. But is renting indefinitely actually a path to the property ladder? The first step to breaking the cycle of becoming ‘forever renters’ is to accept that your first property investment doesn’t need to be your own home. Read my chat with The Property Tribune‘s Liam Wignell below to find out more.
‘Forever renters’ should rethink options.
By Liam Wignell, The Property Tribune, August 19, 2021.
Millennials that rely on the ‘bank of mum and dad’ have been warned this may no longer be an option when it comes to entering the housing market, an housing affordability expert has warned.
While some have their family’s financial support to help with the deposit-gap hurdle – the ABS reported in April that the average house deposit is now over $100,000 – Ian Ugarte, founder of Small is the New Big, argued that other young people are suffering from making bad assumptions which subsequently are keeping them out of the property game.
“There are three underlying beliefs that are entrenched in the minds of most Aussie millennials that are keeping them ‘trapped’ in the rental cycle forever,” he said.
“Firstly, 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.”
“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.”
— Ian Ugarte
He stressed that it is far better to buy where you can afford as soon as practical and then use the investment income to help pay the rent where you wish to live – a process known as ‘rentvesting’.
Mr Ugarte argued that the sooner buyers can get into the market and reap rewards of capital growth and cash flow, this will increase their ability to save for a deposit in a more desired area.
His second belief concerns government grants. While noting it is tempting to grab any first home buyer’s grants or stamp duty relief, he said you shouldn’t base your purchase around that.
“I’ve 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,” he said.
“And if you don’t 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 – even five or 10 years later – when you do decide to become an owner-occupier.”
— Ian Ugarte
Lastly, Mr Ugarte said that buyers needed to flip the lid on the idea that you have to own a property in order to generate money.
“(This) one is a bit out of the box, and needs a genuine entrepreneurial mindset to think through it, but we’ve 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.
“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,” he concluded