For most Australians, there will be stretches of time where it may feel tough to get ahead. You might be living paycheck to paycheck or even struggling to make ends meet, perhaps even seeking out wealth building strategies only for them to fall through and have you back at square one.
This is not an uncommon occurrence and for most of us, it is simply a part of everyday life, the highs and lows that make it that much more exciting. The problem is not so much that we are working ourselves to death and not seeing the long-term results but rather we begin to envy those who have it a little better than us or when things just seem to be going right for them, we feel that they somehow cheated the system to get ahead. You have probably felt this at some point in your life, it is almost a natural reaction, a fundamental part of the human condition. Yet we never stop and think, how could this be damaging our own journey of success?
Take for example a recent article on domain. It has been brought to the attention of Australians that investors who own multiple properties are still taking advantage of first home buyer benefits. Reading this, you might automatically feel the outrage. “How dare they twist the rules to make themselves wealthier”. On first glance it might seem a little unfair. First home buyers are often struggling themselves to get into the property market so why should others who own multiple properties take advantage of benefits put in place to help people who are still yet to own their first. Let’s have a deeper look into what is going on and perhaps see things from another perspective.
This loophole is available across all states and territories in Australia, meaning no one portion of the country is being favoured. The rule states that if a homeowner hasn’t lived in their own property for over 6 months, they are eligible to claim a first home buyer stamp duty concession in order to purchase a home to live in. To put it simply, they are not using this concession to purchase more property but instead to purchase a property for themselves to live in. Additionally, the owner of the home must not have owned real estate prior to July 1, 2000.
We can see then that investment properties and those that the homeowner is purchasing for residence are treated differently. The home that is being purchased for residency is not to build wealth or earn income but instead it is to live in and perhaps raise a family. With this in mind, there still might be a bit of animosity between those who own property in this way and those that are still renting, desperately seeking their opportunity to enter the property market. Let’s move onto the second point.
The methods that these investors are using to make waves in the property market are available to all Australians, even those on lower than median incomes. You don’t need to come from wealth, but you do need an attitude geared towards wealth building and taking advantage of opportunities. Rentvesting has been around for some time now and with rapidly moving markets, there has never been a better time to employ this strategy to not only build wealth but also to acquire that first home to live in.
This is exactly what Dean Munro, 29-year-old Uber driver and property investor interviewed in the article for Domain set his goals to when he started Rentvesting a decade ago. Owning three properties already in both his name and in a trust with family members, the portfolio is not only worth over $2 million, it has also provided Mr. Munro with the chance to acquire a property without spending years saving up for a deposit. Mr. Munro would have spent that decade renting just as many other Australians would have while also tenanting properties in order to pay down investment loans.
Overtime, this creates a surplus of equity in these properties which can be leveraged on further properties or in this case, collateral on a new home. Mr. Munro, having never lived in one of his own properties, is able to claim the first home owners stamp duty exemption meaning he is able to shave $17,620 off his modest $425,000 home. In a way, he is taking advantage of loopholes and strategy that exist for all Australians and achieving the Australian dream in ways that many others may not be aware of. We often look at stories like this and feel that he has rorted the system but there is another way to look at it.
Mr. Munro’s rentvesting strategy could also be seen as a blueprint for many young Australians to enter the property market and acquire their first home much sooner than simply saving up for a deposit. Not only will the portfolio grow over the years, creating the opportunity to purchase a new property, you will also have a comfortable nest egg for retirement down the line. Additionally, rentvesting increases the supply of rental stock in our cities, keeping rental rates at a level that are more affordable and in line with our wages.
This allows for individual investors to have healthy financial situations rather than relying on savings and the family home alone. Rentvesting should not be seen as being on the same playing field as first home buyers or those who already own their own home. It is fundamentally different, running parallel in a market all on its own. Rentvesting is a financial strategy, one which utilises property as its asset class with different rules regarding taxation and financing.
The mindset for a number of Australians is that this strategy does make it harder for them to enter the property market, pushing up prices and using dishonest means to further one’s financial gain. This could not be further from the truth. It really does come down to the mindset of the investor. Those who are positive about attaining wealth and climbing the property ladder, whether it is their first home, they are a rentvestor or they are working their way towards making their first purchase, they don’t see it as black and white. They see rules and guidelines that create opportunities to make their life easier, to drive their strategy home and they will ensure that they use it every bit to their advantage. If more Australians were able to put their tall poppy syndrome aside and focus on creating their own wealth building strategies with the rule book they are given, our property markets would undergo changes that could lead to a very wealthy nation with every household holding an abundance of income producing assets furthering the prosperity of their family.
There is argument on behalf of First Home Buyers Australia found Daniel Cohen that investors should not be able to pick and choose which grants they are able to use, stating that they have access to tax incentives such as negative gearing to take advantage of.
“So, if you choose to enter the property market as a rentvestor … while this is a viable option for consideration, by choosing this method you should be giving up your right to the [grant],” Mr. Cohen said.
While this is true that investors have access to other incentives, investors and first home buyers should not be thought of as two distinct groups that operate by different rules. They are Australian’s like you and me who have the same values and goals of achieving financial freedom. In saying this, we should understand that investors and first home buyers are one in the same. While those who are rentvesting decided to forgo other financial obligations such as purchasing their first home sooner or perhaps live a more frugal lifestyle in order to expand their portfolio, at the end of the day, they too simply want to live in a home all of their own.
Each and every Australian has the same rules available to them. Some may use the rules more in their favour than others. It is important to consider thinking outside the box when it comes to wealth creation and overcoming the challenges of purchasing residential property. We are now living in a time where the rules and bending and shifting in ways that could not have been anticipated in the past and this does not mean we should see those trailblazers who are using loopholes as a means of achieving their goals. Instead, we should be looking to them as a model to achieve similar success, after all, if they can do it, why can’t you?