You don't need to get a foot on the property ladder – a toe works!

By: Nicole Pedersen-McKinnon 

If you’re a frustrated renter scrimping and saving to buy your first home, positive headlines about gravity-defying property prices are just demoralizing. Then you have the other, negative take on our property market: it’s a “bubble”, the media sporadically reports.

Just what to do? 

Firstly, remember that the time to buy property is when you’re ready, not when you’re rushed… especially by seemingly runaway prices. Realise, too, that Australia is a diverse place and market conditions are different everywhere. 

Most importantly, though, don’t overcommit. It is never sensible to gear yourself up to the hilt. You can find your safe borrowing ceiling by taking one third of your monthly before-tax income, then jumping on an online calculator to see what sized loan that would service. You will probably need at least 10 per cent of the price you ultimately pay in cash, plus costs.   

If these calculations get you nowhere near the property you want, you may have to reduce your expectations. Better still, try these out-of-the-box ways of – at least the first time – getting just a toe on the property ladder. You can begin to seriously scale it down the track. 

Strategy 1: Buy with family

Before you dismiss this idea, you don’t have to live with them (although there are certainly multiple generations co-owning and co-habiting in places like Sydney).

What I mean is convincing a family member to invest in your property – by going halves. For them it would be a genuine rental – with you paying half the market rate – complete with all the tax perks. For you it would mean half the deposit and entry costs, and committing to only half the mortgage. It’s also possible that your half-rent would be cheaper than your half-mortgage – so you’d come out ahead on a monthly basis. 

Just be sure to get a watertight co-ownership agreement drawn up by a lawyer. This should deal with who pays what bills on an ongoing basis and for any necessary repairs, and when and how you sell (particularly if one party wants to buy out the other). 

Strategy 2: Buy-to-let rather than live

Renting can come with some big advantages, not least that in cities it is often cheaper than paying the mortgage on the same property. So why not consider renting in the locale you love, and buy an investment property somewhere someone else loves… but that is far cheaper (perhaps because it’s regional). The rent you receive could even cover your mortgage payments (there’ll need to be good rental demand wherever you buy and also decent growth prospects).

This is referred to as rent-vesting – remaining renting while also investing elsewhere. And you don’t have to limit yourself to property either; you also have the option to buy shares and other investments. The key is simply to invest every dollar of what you save by renting yourself – so you come out ahead. 

Strategy 3. Buy for lifestyle and make it work

If your job is in a big expensive city, is there any way you could work from afar? Or work in the office less? That would free you up to live further afield where prices are far more affordable. You could even consider buying property a flight away, as some FIFO workers do, as the price discount could pay for a lot of cheap airfares. Just imagine retreating to your home at the beach…

Nicole Pedersen-McKinnon is an independent money commentator and financial educator across newspapers, online and on television, and in high schools around Australia. Twitter: @NicolePedMcK

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