Posted on February 13th, 2024

Rentvesting is a perfect start to get into the property market

Buying a home is one of the biggest financial decisions that a person can make in their lifetime. It is also a milestone that many aspire to achieve – owning your own home gives you stability and security for the future.

When you purchase your first home, it’s essential to recognise that you’re also making your first step into property investment and the opportunity to build a portfolio. It is crucial to approach the home-buying process with an investor’s mindset. So, how do I do this?

Home owner

There are many reasons why people choose to buy their first home. For some, it’s the desire for independence and freedom from renting. Others see it as a long-term investment that provides financial security and stability for their family. Some may also view it as a chance to build equity and wealth by leveraging property values in the future. Start with figuring out your reasons why.

How to buy a home

With the soaring prices of housing in Australia, it’s becoming increasingly important to have a well-researched and informed approach when entering the property market. While First Home Buyer incentives are a great starting point for those looking to buy their first home, there are other ways to enter the market.

Maybe the bank of Mum and Dad, where you can borrow money from your parents, is the right option for you. Another option is to become a rentvestor, which means you can live in the place you want while someone else pays off your investment property. Alternatively, have you considered buying a property with your friends or family? This can be a great way to pool resources and share the responsibilities of homeownership.

First-time Property Purchase In Australia

In the early 1990s, the cost of a home was the equivalent of about two and a half years’ worth of the average wage, which provided a relatively affordable housing market. However, over the years, the cost of entering Australia’s property market has significantly increased, reaching a point where it now exceeds six years’ worth of the average wage. This substantial rise in housing prices has created challenges for many individuals and families trying to enter the real estate market. In fact, in 2022, the median price for a house in a capital city skyrocketed to over $928,000.

This means that for many first-time property buyers, saving for a deposit can be a daunting task. Not to mention coming up with the funds for things like stamp duty and legal fees. However, with careful planning and research, there are still ways to enter the market and achieve your dream of owning a home.

4 Ways to enter the property market

Whether you want to leverage government incentives designed to assist first-time buyers, delve into the world of rentvesting, lean on the ‘Bank of Mum and Dad’ approach, or explore buying property collectively with friends, there are multiple ways to make your first property purchase a reality.

Use Government Incentives

The Australian government offers several incentives to help first-time buyers enter the property market. These include grants, tax benefits, and concessions that can significantly reduce the financial burden of entering the real estate market.

One such initiative is the First Home Guarantee. An initiative of the federal government, it allows eligible first-home buyers to purchase a property with as little as 5% deposit without the need for lender’s mortgage insurance (LMI).

This can save buyers thousands of dollars and make the dream of owning a home a reality.
Rentvesting

Rentvesting is an increasingly popular strategy for first-time buyers who are struggling to save for a deposit. It involves renting in the suburb or city you want to live in while purchasing an investment property in a more affordable location.

This approach allows you to enter the market, build equity through property ownership, and still enjoy the lifestyle of your choice. Plus, with rental income covering most (or all) of your mortgage repayments, you may have more disposable income to save toward an eventual owner-occupied purchase.
Lean on the ‘Bank of Mum and Dad’

A play on words, ‘The Bank of Mum and Dad’ refers to parents helping their children financially to purchase property. In many cases, this assistance can take the form of a gift toward the initial deposit, co-signing a loan, or even going as far as purchasing a property as an investment for their child to live in.

While not everyone has the luxury of parental support, it is worth discussing with your family if they are in a position to help. Just remember that this kind of arrangement should be treated like any other financial transaction and proper legal agreements should be put in place to protect both parties.
Buy with Friends

Sharing the financial burden with friends can also help first-time buyers get their foot in the door of the property market. This approach involves purchasing a property together, sharing both the initial costs and ongoing mortgage repayments.

However, buying property with others is not without its risks. It’s essential to have open and honest discussions about expectations, potential exit strategies, and each person’s financial commitment. It is also prudent to seek legal advice and have a written agreement in place to protect everyone’s interests.

Summary

With Australia’s property market continuing its upward trajectory, first-time buyers should not feel that entering the property market is out of reach. It may require some creative thinking and financial planning, but options such as government grants, rentvesting, parental support, and buying with friends can help make the dream of owning a home a reality. Owning your own home remains an important step towards long-term financial stability, and with the right approach, it can be achievable for first-time buyers.

Looking ahead to 2024, surging demand for housing will soon surpass current housing supply in capital cities. Currently, construction of new properties remains at decade lows, exacerbating the shortage. While the Australian government has implemented initiatives to incentivize developers to build more affordable homes, it is unlikely to make a significant impact in the short term. This shortage of housing supply will continue to drive up property prices, making it essential for first-time buyers to act quickly and strategically.

Don’t do it alone, Ironfish is here to take the headache out of property investment.

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Lean on the ‘Bank of Mum and Dad’