How to move from renter to owner
There's a general progression that people on the real estate journey, one that most of us follow at some point in our lives. On the day we move out on our own, we are following generations of people before us, and while not everybody's path is identical, there are nonetheless well-trodden sections to move through.
Despite the increasingly tough property market conditions, the great Australian dream of buying a first home is alive and well, with the proportion of housing finance commitments coming from first home buyers sitting at over 15% according the the Australian Bureau of Statistics (ABS).
Before accruing all of the finances they need to make that leap into home ownership, the vast majority of Australian first home buyers would have spent time renting. So how can you join the party, and transition from home renter to homeowner?
How Much Will it Cost?
It's easy to read the frequent news reports about skyrocketing house prices and historic low housing affordability and be intimidated. However, should you know where to look, and how to temper your own expectations, finding affordable housing for purchase is not as difficult as you might think.
In fact, as reported in the Courier Mail in some 111 suburbs in the city of Brisbane, rent is actually higher than the ABS' figures on weekly housing costs for people with a mortgage. The median $453 weekly spend for mortgagees equates to approximately 18 per cent of income spent on housing costs, while renters were finding themselves spending 20 per cent.
As you can see, perhaps breaking out of the cycle of renting is not as out-of-reach as you might think.
How Can you Get There?
One of the greatest hurdles to buying a home can be saving the required deposit. Bankwest First Time Buyer Report shows that for most couples, saving 20% for a home deposit will take on average 4.9 years for a house and 3.6 years for a unit. In some of the larger cities such as Sydney and melbourne where property values are higher, however, that median stretches to as much as 8.2 years.
Having to grind out savings for over eight years is, for many people, simply an unreasonable ask. There's a silver lining though - you shouldn't have to do it on your own. Each state and territory in Australia offers its own first home buyer incentives, including grants (up to $15,000 in Queensland) that can help you on your way to building your deposit. No-one is saying it's easy, but thousands of Australians every year make the jump, and you can too. Click here to find out about the grant in your state or territory along with all the first home owner information you need.
From Tenant to Landlord
Perhaps you're interested in real estate ownership as an income stream, as well as or in place of just owning a home for yourself to live in. Owning investment property is a great way to build your assets, so if you don't necessarily want to move to the place you're buying, that doesn't mean you should disregard the opportunity to buy altogether.
A recent Reserve Bank of Australia discussion paper revealed that if a first home buyer bought an investment property and rented / lived somewhere else, they may come out in a better financial position than if they bought their own home straight away.
According to the ABS approximately 27% of Gen Y’s have the luxury of being able to live at home during much of their 20’s and whilst many are contributing to the costs of the family home by way of rent to their parents, it is often less than what they would pay if they lived out of home.
In addition to these Gen Y’s, there is another group identified by LJ Hooker a few years ago the Rentvestors, who seek out affordable areas in suburban locations for their first foray into property ownership, but choose to live and rent closer to the CBD or their workplace.
To help you determine whether Rentvesting is the right option for you, here are some pros and cons of this buying trend:
Pros of Rentvesting
Enter the property market sooner and start generating capital gains and building wealth
Rent in an area you want to live in and enjoy its lifestyle benefits
Potential to earn additional income if the rent you receive is greater than your loan repayments
Start building a property investing portfolio
Choose where you want to invest without worrying about living in the area
Cons of Rentvesting
Renting is always temporary and comes with the hassle of moving more frequently
May not be able to access the first home owner grant
May have to pay capital gains tax
You are living in a rental property you can’t make changes to the property OR
Your living with your parents which may bring other restrictions
Building up a property portfolio as an investment is one of the further branches that your real estate path could take, so keep in mind that your first home buyer benefits don't have to be targeted towards a property you're going to live in.
Buying your first home doesn't always mean the end of your renting life, but for some people it's the reward at the end of a long real estate journey, often through many rentals and landlords. Savouring that moment where you're no longer paying someone else for their house is just the icing on the cake.