There is constant debate about housing affordability in Australia and how to make buying your first property easier. If you are wanting to buy your first house, but are not sure how you can possibly do that, here are some ideas.
1. Access the bank of mum and dad
While this might not be acceptable to every parent (and I don’t blame them), accessing the bank of mum and dad may be the fast track to acquiring property. While banks will still want to see that you can personally afford the loan, and will want to see a history of saving, the bank of mum and dad might be able to help in one of the following ways :
- Lend you some additional money to increase your deposit
- Act as guarantor for your loan
- Provide their own home as additional security for your loan, potentially increasing the amount you can borrow
I am not saying that these ideas are necessarily a good financial decision for mum and dad though. Mum and dad will need to weigh up the benefits of helping out their children or getting them out of their house against the financial risks in providing security for loans or acting as guarantor on a loan. As a parent, my personal preference would be lending some money to top up an existing deposit.
2. Tighten the belt, and focus heavily on reducing expenses and saving money for a deposit
To obtain a loan to buy your first house, the banks will want to see that you know how to manage your money and see clear evidence that you have a record of saving money. The more money you can save by tightening the belt and reducing expenditure on unnecessary items, will mean you will be a more attractive proposition for the bank and have a higher deposit when you buy your first property.
The other advantage of this, is that owning a property comes with many expenses. Many of these expenses can be planned for (eg. council rates, insurance, mortgage repayments etc) while others cannot (eg. broken HWS, leaking roof). As such the good money management habits you develop in saving for a deposit will stand you in good stead for managing the often lumpy and unplanned expense profile of owning your first home.
3. Buy your first house as an investment property
The phrase “rent-vesting” has been coined to describe the option of buying a house to rent out, while you also continue to rent to live elsewhere. Australia’s tax system (while always under review) does make owning an investment property potentially easier than owning a property to live in. Many of the tax implications associated with an investment property still exist when living abroad.
4. Rent out some rooms in your house
If you are living in the house yourself, why not supplement your income and pay off your loan faster by renting out the spare rooms in your house. The internet now makes the process of finding a boarder a lot easier, and you have the option of getting a permanent or long term boarder in, or offering your room for short stays on websites like airbnb.
5. Buy the house jointly with your partner, family or friends
Buying a house jointly with your partner, family or friends is an option many younger people choose. It enables people to pool their deposits, and pool their income making it easier to obtain financial approval for a loan. The key to this being a successful strategy is getting agreement amongst all the parties upfront about how the property will be managed, how long you will all hold the property, and what to do if someone wants to sell the property before everyone else.
6. Lower your expectations
We would all love to buy the house of our dreams as our first house, but the reality is we should all lower our expectations when attempting to get on the property ladder for the first time. I would have loved to get an apartment by the beach in Perth when I bought my first house, however (a) I didn’t feel comfortable having such a large debt, and (b) I probably could never have got the loan in the first place. In the end I settled for a small twenty year old, unrenovated two bedroom townhouse about five km from the city centre. It cost me $124,000, but today is worth over $400,000.
7. Consider an Interest Only Loan
The banks over the last year have been increasing the interest rates on interest only loans relative to principal and interest loans, however they can still make life easier from a cash flow point of view – particularly in the inital period after buying your first house. With an interest only loan, you only need to make interest payments on your loan for an initial period (usually less than 5 years) before it reverts to principal and interest repayments.
8. Maximise the tax benefits
If you buy your first house as an investment, then make sure you claim all the tax benefits you are entitled to. As an investment property, you are generally entitled to claim all your maintenance costs, property management fees, loan interest and more as deductions for Australian income tax purposes. If you are living in the house but rent out some of the rooms, you may also be entitled to claim tax deductions. You should also be aware that you are entitled to claim rental property depreciation which will further reduce your income tax liabilities.
While the tax treatment for Australians living abroad is slightly different to those living at home, Australian expats are still entitled to certain negative gearing benefits.
9. Access your superannuation?
This is being debated by our politicians at this very time. While it is not available to you now, perhaps in the near future there may be limited opportunities to access your superannuation savings for a deposit to buy your first house.
Need Help Buying Your First Property?
Michael and Richie are both founders and directors of Milk Chocolate Property Concierge. They understand first hand what it’s like buying property whilst living abroad. As two former expats that lived in North America and Europe, they have been buying, renovating and selling property in Australia for the past 10 years.
Milk Chocolate is a bespoke property concierge business that exists to buy and renovate property on behalf of expats living abroad. We are a true concierge service, taking care of every last detail of your property purchase. Using the latest technology, data and communicating in your time zone, they ensure the experience is rewarding and enjoyable one.
Mention the Australian Expat Investor when contacting Milk Chocolate, or complete the form below and you will be entitled to not only a free initial consultation to discuss your needs and to see if Milk Chocolate is right for you, but you will also receive a free voucher to the value of A$500 to treat yourself to a celebratory dinner in your country of residence when you sign up to use their services (and pay your initial fee).
Interested in buying property whilst living abroad? Here are some related articles to this story that might be of interest to you :
- Benefits of Using a Buyers Agent
- 6 Steps to Buying Property Whilst Living Abroad
- 8 Benefits of Investing in Australian Property While Living Abroad