What happens if you don't buy a home?
You don’t want to buy a house? I hear you. Who’d want to save a house deposit when they could jet off to Rome and eat gelati for a lot less? It’s totally understandable. There’s a reason that millennials want to live in the moment and make the most of the ‘you only live once’ philosophy. There’s only one problem. Living in the now can really cost you later.
Consider this: if you don’t own your home by the time you retire, you have to live on a pension of $22,000 along with the superannuation and savings you’ve accumulated during your working life. And if you retire at 65, then live until you’re 100, will you have enough to live comfortably for 35 years?
Our society is not set up for renting into retirement. Imagine packing boxes when you’re 72 because your landlord’s selling the house you’re living in. Will all of those European adventures have been worth it? Sure, in some respects, travel enhances our lives, but if it takes away from it in later years, you’ll likely resent those fancy Sicilian pizzas and warm French croissants.
In good news, you don’t have to give those things up forever. But if you’re young and smart, you’ll set up a plan now so you’re not living on baked beans when you’re older. If you aim to buy an entry-level investment, the deposit might be more realistic to save than you first thought. Plus, there’s a stack of excellent first home buyer incentives that make it easier to secure a place.
And, you don’t have to be shackled to the mortgage forever if that’s not your thing. What’s important is to decide how to enter the market in a way that’s respectful to your personal values. Maybe that means seeking out an affordable regional investment that you have tenants in for a while until you move in. Maybe you buy an entry-level investment and continue to rent where you want to live.
Here’s a quick look at some of the ways you can enter the market if you can’t afford to buy where you want to live:
Depending on where you’re looking, there are some great regional investment incentives. For example, if you are buying or building a new home in regional Victoria worth up to $750,000, you’re eligible for a $20,000 First Home Owner Grant (FHOG). In addition, first home buyers are also eligible for stamp duty exemptions. These incentives can significantly reduce the barrier to entry.
Having said that, you may be required to live in your property for a period so that it’s your ‘principal residence’. So, if you’re considering this route, make sure you can work remotely or commute during that time. The advantage is that there are some bargains to be found in regional locations and there’s a lot of growth occurring in some locations. Do your research. You might just find that in time you build enough equity to buy a home closer to town.
There’s no shortage of first home buyers choosing this approach. Rentvesting means you purchase an investment property and rent where you want to live. Again, you may want to live in it first to reduce your upfront costs if there are first home buyer incentives, but later you can move to your preferred location, which a tenant pays most or all of your mortgage. Plus, you’re entitled to negative gearing tax benefits, which means you’re able to claim tax deductions on costs that leave you out of pocket, such as council rates, water bills and maintenance.
Working with family
This is not an option for everyone, but if your parents have equity in their home, they may be in a position to go guarantor, which essentially means they’re your financial fall-back if anything goes wrong. Alternatively, they might draw on their equity to help with your deposit. If you choose this path, it’s essential to come to an agreement that makes each party’s responsibilities clear. For example, you may agree to pay back a loan over a period of time, or they’re removed as guarantor when you’ve paid down a certain amount. But even if your folks are in a position to help, you’ll still need to prove that you can save and manage mortgage repayments on your income.
Whichever path you take, it’s important to do your research. Look into how much you can borrow on your income, understand what sort of deposit you might need and consider exploring the options with a mortgage broker. You might just find it’s easier to achieve than you think.
This article first appeared on realestate.com.au
Learn about rentvesting and the importance of securing your financial future in Nicole Haddow’s Smashed Avocado: How I cracked the property market and you can too, out now.