Yahoo Finance 4 tips to get onto the property ladder
With the Government taking 9.5 per cent of a young person’s wage to put towards super nest egg when they reach retirement, how do they raise the deposit to buy a house or apartment to live in?
And this 9.5 per cent ‘loss’ of potential income, and therefore savings, is coming up against a housing sector that’s expected to see 10 per cent price rises for three years in a row.
If you’re a young Australian, unfortunately, it’s pretty tricky to get together enough deposit to crack into the property market.
But here are 4 options to try out:
1. Borrow money from your parents
Parents might even go guarantor (which can be risky), especially if the borrowers lose their job, get divorced or encounter a trauma, either of which could make loan repayments impossible.
2. Save, the old fashioned way
You could save like never before and stay home living a life like a Tibetan monk. Although that’s made harder now one-year term deposits have an interest lower than 0.5 per cent.
3. Save through super
You could save through your super fund. You could put $15,000 a year, up to a maximum of $30,000, which you then can benefit from better returns from a super fund, hopefully, and this can be withdrawn for a deposit for a property.
A couple could potentially get $60,000 out, but these withdrawals have to be from voluntary contributions.
Provided stock markets go up, this is probably the fastest and safest way to build up a deposit.
A casino might be faster, but it would be miles more risky.
4. Invest in property to get on the ladder
If you’re earning a good income and paying a lot of tax, some would-be property players could look for a small investment property with the view to then buy and rent it out.
Not only would it put you on the ladder, but you could even benefit from being negatively geared (where rental income is less than interest repayments). That the loss can be deducted from your gross income, which in turn would reduce your annual tax bill.
Your tax refund can make the loan repayments easier to make, so effectively the tax office is helping you own real estate. However, be careful. I recommend you do a lot of homework to become an expert on being a landlord.
You would need to make sure you buy a property that’s easy to rent out, which means it’s in a favourable area for tenants and there are plenty of potential tenants to want your property.
Also, you would need to be sure that over time the area will become more popular, which means there’ll be capital gain or a higher selling price in the future, compared to what you bought the property for.
You would also need to be certain you can cover any interest rate rises and that your income is safe.
Some younger would-be property owners might even buy a home that they’d like to live in, but can’t afford to do so right now. As a consequence, they decide to become landlords for such a property, until their income permits them to move into it permanently, which is beneficial for capital gains tax purposes.
For example, if you bought an investment property, rented it out for 5 years then lived in it for 15 years before selling, you’d only need to pay capital gains tax on one-third of the capital gain.
Also, capital gains tax is paid at your top tax rate, but if you own an asset for over 12 months, you only pay tax on half of the gain.
This is called the capital gains tax discount and encourages investors to hold on to their assets for a longer period of time, and therefore discourages speculation and quick flipping of property and other assets such as shares.
Good luck if you’re hoping to get into the property market one day. Let me insist that you do a lot of homework and ask a lot of questions from the experts.
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