Alternative ways to get into the market

January 31, 2017


By Nicola McDougall

Alternative ways to get into the market
Posted on Tuesday, January 31st, 2017

sydney-house-investmentBuying your first property has never been easy – even for our parents and grandparents.

Back then, sure property prices were cheaper, but you generally only had one income to pay off the mortgage.

Historically low interest rates today mean that loan affordability is the best it’s been for decades but it’s the saving of the deposit that many would-be homeowners struggle with.

Property prices have soared in Sydney and Melbourne in recent years, making the ability to save a 10 per cent deposit – let alone the magical 20 per cent – staggeringly difficult.

But if owning your own home or investment property is the end goal, there are ways to help you pull together that all-important down payment.

An alternative way into the market in the 21st Century could be accessing funding models like crowd-funding or perhaps buying a proportion of a property via a facility like BrickX, which involves buying fractions of a property and in return you receive your share of the rental income and you can hopefully sell your “bricks” in the future and achieve capital growth.

More and more Generation Y are also choosing to join forces, as well as finances, and invest in a property together using a co-buying or tenants in common ownership structure.

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sydney-property-investmentAn example might be three Sydney mates who each have $20,000 in savings but which isn’t enough for them to buy a property individually. Instead, by pooling their deposits – which would equal $60,000 – as well as using their collective salaries to secure the finance, they may be able to buy an investment property in a more affordable location such as Brisbane for $500,000 with a mortgage of $440,000.

Perhaps they use an ownership structure where each of them owns one-third of the property – although with tenants in common each person is also wholly and severally responsible for the mortgage in case someone defaults, which is why you need to get legal advice before using this ownership strategy – and after three years the house has increased in value by 25 per cent.

That would mean that the property would now be worth $625,000. If they decided to sell, the trio could potentially walk away with more than $61,000 each – effectively tripling their original deposit amount in the space of three years, which may allow them to then buy their own property. They could also choose to keep that property, access the increased equity and buy another property together, which would continue to grow their collective wealth over time.

Another way to increase your deposit may be to become a joint venture partner in a small property development. This could be an investment of $20,000, from which you may achieve a 40 to 50 per cent return in 18 months to two years (rough numbers only). While potentially lucrative, joint ventures are always high-risk so there is a chance that you could not make a return at all – or worse still lose your investment entirely if the developer goes belly up or the bottom falls out of the market during the construction phase.

As you can see, saving a deposit doesn’t necessarily require you to live on baked beans on toast for years or resort to drinking cask wine every other Friday.

By thinking outside of the savings box and considering other creative finance options, you could turbo-charge your deposit so you can buy a property to live in or to rent out sooner rather than later.

Want to learn more?  Get specific Rentvesting strategies below!

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