Property Ladder: Get to Know its Rungs (Copy)
Despite what you may have heard, there are several shortcuts to getting on the property ladder even in these times of sky-high home prices. A young person just starting out in the world has a range of options available to them:
Marrying into a wealthy family
Embezzlement, blackmail, or other so-called ‘white collar’ crime
Moving to a less expensive region of the world (ideally one with active political unrest, which tends to depress land prices)
And, of course, my personal favourite — winning Tatts!
Sadly, if none of those options are practical for your situation, the barriers to entry get rather steeper. Even with a good job and a clean credit history, without a whacking deposit, many banks are less interested in first-time home buyers these days. And recent studies reveal the median home price ratio vs. the typical Australian income has gone completely bonkers, to summarise the findings.
So what’s a person (or a family) to do? Renting may be your only short-term option, but that ties up cash you could be using to build your future. You can try to economise by moving to a more affordable area or taking roommates, but it can still take years to save up anything resembling a down payment.
There are a few things to remember before giving up hope. Firstly, the high prices affect everyone — people have watched their own home values double or even triple, but if they contemplate moving they find everyone else’s prices have risen on about the same multiplier, so they still can’t afford to move! And more people renting vs. owning is not good for the economy in the long run, so hopefully the government is going to be doing something about this.
Also, the housing bull market won’t last forever — I know this because people have been saying so for over 10 years now… when it does crest, the government is likely to take steps to cushion its decline rather than permit a crash such as the one which hammered American homeowners in 2007–2008.
What do we do now? You may not be able to get your dream home right now, but maybe you can buy something else — maybe the best you can afford is too small for you, or all the way across town from your family and friends. But if you can use it to get a foot in the door and then rent it out while you build up your finances, that’s definitely a solid plan. In fact, it’s called Rentvesting
There are also ways to join with others in buying a property — this is called “buying in common” or fractional ownership, and is another way to get your foot in the door for less initial outlay. Some banks have tailored packages for just this situation.
Finally, pandemic-related lockdowns have shown many businesses that remote working is a lot more practical than was previously thought. What this means is that you can consider less expensive neighbourhoods, farther outside of major city centres, without consigning yourself to an intolerable commute.
In summary: manage your expectations, don’t give up, and obtain trustworthy expert advice about your specific situation. And don’t buy Tatts tickets, I was just joking up there at the start, they’re a complete waste of money! (except when they’re not, I suppose…)
