Home truths for Generation Y
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.