With the median house price in Sydney hitting an all-new high of $1,068,303 (according to the Domain Group), it’s no wonder young residents of the Harbour City are having such a tough time entering the property market.
While difficult, purchasing a home in Sydney or any other high-growth market in Australia is not impossible for young people. Sound financial planning and a little help from parents goes a long way.
Invest when you’re young
Thirty-one-year-old Gabi Stephen and her husband Joey recently secured a $1.1 million two-bedroom unit on Fairy Bower Road, near Shelly Beach in Sydney’s northern beaches. Gabi said buying an apartment in the tough Manly market was made possible because she’d bought an investment unit in Pennant Hills when she was in her mid-20s.
Gabi saved up $20,000 in her teens and twenties, enabling her to put down a deposit on the $190,000 studio in Pennant Hills.
“I lived with my parents and worked all the way through high school and did part time jobs. Even when I went travelling and did seasons in the snow in Japan and Canada, I worked the whole time,” Gabi said. “My earnings went into savings. Half of my tax back each year would be spent on travelling and the rest would go into savings.”
Gabi began generating income on her investment property by renting it out immediately. “At first I was charging $290 per week in rent and breaking even, but each year I was able to put the rent up until I was making $1000 extra on top of the rent,” she said.
The funds, along with additional savings, enabled Gabi and her husband to contribute to a sizable deposit on their Manly unit.
Tips for young property investors
Other young people have managed to enter the property market using a similar approach of long-term financial planning and frugality. Here are some tips for those 20- and 30-year-olds who dream of owning their own homes before they hit middle age.
- Don’t be shy about relying on parental assistance.
While many young adults dream of leaving home as soon as they’re of age, Gabi advises young adults to take advantage of parental assistance. She recommends young adults try living rent-free with parents or splitting expenses in a shared house so that they can save the money they’ll need for the deposit and miscellaneous expenses.
Moreover, children shouldn’t be afraid to ask their parents for financial assistance if they want to invest in property. With house prices rising in many parts of Australia, more and more parents feel obligated to guarantee their children’s home loans. In fact, the banking industry has begun marketing home loan products that limit the risks to parents if their children are unable to repay their loans.
- Save—but don’t forget to enjoy life.
You’ll need to save money (obviously) if you want to enter the property market. However, that doesn’t mean you won’t be able to enjoy your fleeting youth at the same time. Gabi advises young property investors to put away half of their tax returns and bonuses. The rest can be used for travel and other investments that will enrich their lives.
Great savings habits will also endear you to the lenders because they’re looking for evidence of consistent savings over time. Hence, you should get into the habit of putting aside money from any income, even casual jobs. To meet lender’s guidelines, you’ll need to show savings of 3% of your purchase price, generally over a six-month period.
- Get help from the professionals.
Fortunately, you don’t need to be a financial, legal, or real estate genius to invest smart—you can pay someone to do that stuff for you.
You can consult a financial advisor to help you set savings and repayment goals based on your income. What’s more, you don’t always have to pay for the service as some lenders cover the consultations.
A buyer’s agent can also help. Unlike a sales agent, a buyer’s agent will consider your budget and strategy, and will negotiate the sale for you. Hayden, a 29-year-old property investor, embarked on his property journey without help from mum and dad.
He found a buyer’s agent whose services cost about 2% commission on the property price. For Hayden’s $655,000 unit, this was about $11,000. For an investment property, he was advised that the buyer’s agent fee might be tax deductible after the sale of the property. In other words, after Hayden sells his property, he could take $11,000 off the money he potentially makes from the property so that he’s taxed less.
There are many legal ways to fund your property purchase in your 20s and 30s. Just don’t forget to have a solicitor review the contracts before signing your name on the dotted line.