Kids today. They’re starting young.
It’s a clichéd line, but it’s true. It came as a surprise this year when a study from Domain revealed that Gen Y are investing in property almost as much their parents. What’s more, they’re getting in the investment property game much earlier: the average age for Gen Y investors is 25, whereas Baby Boomers began investing at 45.
That’s a hell of an age difference and attitude gap.
To use another cliché, the only thing standing in your way of success is you. Blah, blah, blah. This isn’t completely true. There are other things standing in your way of owning your own home. But a lot of these are negative beliefs that can be expunged with the right knowledge, mindset, and a mortgage sage on your side to help you through the process.
Negative belief #1: I don’t know what you think I do for work, but I can’t afford an investment property!
It’s true that Australia’s house prices are one of the highest in the whole world. According to the Domain Group, Sydney’s house prices have increased a whopping 22.9 per cent over the past year. But don’t up and move to Germany yet! You don’t need to have $1 million to buy a property in Sydney. In fact, just $400,000 will do for an outer-suburbs investment property. You can also go inter-state. If you want to get into the housing market, Western Sydney is proving a popular place to buy. With more and more talk of Liverpool and Parramatta becoming mini-cities, Western Sydney is only set to grow.
Not sure how to start saving for your first home? Read this post on successfully saving for your mortgage.
Negative belief #2: Rent doesn’t always cover the cost of owning my first home, so I still can’t afford it.
Obviously this is about saving for your future. Look at you being all responsible. The thing is though, it’s not all bad having to put money in.
I’m going to let you in on a little investment property benefit called negative gearing. Many people have strong feelings about negative gearing, and a simple Google search will display a wide variety of opinions. To put it simply: negative gearing is an investment benefit where investors receive tax cuts if the interest and costs are more than the rent. And here’s why people do it: over time, your property will appreciate in value. When you sell your property for a higher price down the track, you could potentially make up for those losses you accrued earlier.
But not everyone’s a fan of negative gearing. Some say it pushes up the cost of housing, and that it shuts out first homebuyers and lower income owners. Either way, it can be a tax advantage so why not take advantage of it.
Negative belief #3: I am literally petrified of crossing Tom Ugly’s bridge, so I don’t like the idea of buying outside of the cool areas.
Well, here’s a hard truth for you: stop being picky. Of course, set high standards for yourself and dream big, but now is not the time to get emotional about what suburb you live in. An investment property is a business decision, not an emotional one. You need to think about what will give you the best return, and not what suburb will make you cool via extension of their café strip.
Have a long and hard think about why you want to invest in property. After you’ve done some soul searching, it will make the decision that much easier to make.
Negative belief #4: I read that renting is a better option in the long-term, so I’ll just be over sipping my almond latte in Surry Hills, thanks.
Ah, this is one of my favourite arguments. You’ve probably heard an old uncle or auntie say, wine swilling in one hand over the Christmas turkey, “Rent money is dead money, lovey.” While renting gives you the flexibility to up and move to London, or to invest your hard-earned cash elsewhere, you don’t actually receive any return on renting. While it’s arguable that an owner-occupied home is a huge money drain, an investment property can allow you to get into the market without hampering your life plans.
Negative belief #5: I cry every time someone mentions HECS or FEE-HELP, so I can’t afford more debt.
Ok, let’s talk about good debt and bad debt.
Bad debts are things that can’t be recovered. Like taking out a loan for a car, because it depreciates as soon you head down the highway. Or putting those new Nikes on your credit card, because you know you won’t like those shoes in a year’s time.
Good debts, like an investment property, can be recovered. An investment property should go up and value allowing you to sell for a profit. You can also get you tax deductions. For example, as an investor, you’ll be able to claim interest payments, maintenance costs, rates, (i.e. any losses from negative gearing), all on tax. If you live in the home you buy, you’re not so lucky.
To play the devil’s advocate, there are higher interest rates for investors. This is an attempt for the governing bodies to make things fairer for all would-be homebuyers. There are still some lenders out there who don’t penalise investors, and, hint, hint, a good mortgage broker will know which ones these are.
And remember: an investment property will give a nice return on capital growth in addition to a nice little rental income every month. You can even use the equity – that’s the difference between the property’s value and the amount you owe – to buy another property.
As you can see, there aren’t as many cons to investing in property as you thought. The hardest part is getting started.
And that’s our mission here at Mortgage Guy: helping young homeowners get started.
The first step is just a few clicks away – why not get in touch for our completely casual and free advice? Email us today.