Home truths for Gen­er­a­tion Y

The Advertiser - Real Estate - - Front Page -

THINK­ING out­side the square can be good for your fi­nan­cial fu­ture, par­tic­u­larly if you’re a mem­ber of Gen­er­a­tion Y. Young Aus­tralians have been de­lay­ing leav­ing the fam­ily home – partly be­cause of high liv­ing costs, partly be­cause house prices seem out of reach for many and partly be­cause some just want to party at mum and dad’s ex­pense.

This ex­tended pe­riod at home gives Gen Ys a great chance to get into real es­tate – not as tra­di­tional home­buy­ers strug­gling with a crip­pling mort­gage but as prop­erty in­vestors.

If you’re a real es­tate in­vestor, you get help pay­ing for your prop­erty from two sources: your tenants and the Aus­tralian Tax­a­tion Of­fice.

Ade­laide’s me­dian rent for a three­bed­room house is $320 a week and for a two-bed­room unit it’s $270 a week. It’s un­likely that the rent re­ceived on an in­vest­ment prop­erty will com­pletely off­set the loan re­pay­ments but it will cer­tainly wipe out a big chunk.

The short­fall be­tween your rental in­come and ex­penses, such as loans, rates and main­te­nance, is tax-de­ductible through neg­a­tive gear­ing.

There’s even a lit­tle gem from the ATO called non-cash de­duc­tions, for the de­pre­ci­a­tion of fix­tures and fit­tings and a write-down of the build­ing cost of the house – typ­i­cally 2.5 per cent a year over 40 years.

On a newer house, these de­duc­tions can off­set the short­fall be­tween rent and ex­penses.

Of course, there’s one big hur­dle on the path to prop­erty own­er­ship as ei­ther an in­vestor or an owner-occupier and that’s scrap­ing to­gether a de­posit.

A $30,000 or $40,000 de­posit can seem like an im­pos­si­ble goal for peo­ple in their 20s but a lit­tle saved ev­ery week can go a long way. All it takes is dis­ci­pline, time and a will­ing­ness to make a few small sac­ri­fices.

A sav­ing of $100 a week would grow to al­most $30,000 in five years based on cur­rent de­posit ac­count in­ter­est rates. Find­ing $100 a week may seem like mis­sion im­pos­si­ble but cut­ting back on lux­u­ries, like morn­ing cof­fees, bought lunches and ex­pen­sive mo­bile phone plans, can quickly cre­ate ex­tra cash.

There’s al­ways the Bank of Mum and Dad for a pos­si­ble in­ter­est-free loan, if they have the means, to be paid back later once ju­nior has found his or her fi­nan­cial feet.

Par­ents can help pre­pare their adult chil­dren for prop­erty own­er­ship by charg­ing them com­mer­cial rates of board and putting some of it aside as a sur­prise lump sum for when they even­tu­ally leave the nest.

Af­ter all, it’s the largely the baby boomer par­ents who pushed up prop­erty prices through their love af­fair with real es­tate.

Prop­erty prices are no longer ris­ing faster than in­fla­tion and wage in­creases, which means now may be a good time to start think­ing about be­com­ing an in­vestor.

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