The affordability pressure is a reality for first time buyers. Do they take on a heavy mortgage to buy in a poorly serviced fringe suburb, or buy into a non-family friendly apartment because this is what they can afford? How do first time home-buyers get that first foothold into the property market – and should they?
There are a few factors weighing in to the affordability pressure – rapidly increasing house prices, the changing nature of the labour market where work relationships are becoming increasingly more relaxed with contract or freelancer arrangements, and even if you have a permanent job, climbing the career ladder is a slow process. Banks are becoming more cautious with lending, and are requiring higher deposits. All of this means that saving for a deposit to enable your first home purchase seems to be an almost impossible task.
There are a few alternatives to buying a home. Firstly, why buy? One could rent a home in an area that suits you, at an affordable price, so why not just do this, and skip the painful buying process? This can certainly be an option for you – however, if you are a renter, you need to plan very carefully for your retirement – ensure that you save enough to compensate for the “forced savings” of a mortgage repayment, and that you have a solid investment plan to ensure that you have enough money to retire on, and cover your rent during this phase of your life. This is an option – albeit a risky one.
Another option is rentvesting. ‘Rentvesting’ is the term given to first-home buyers who are buying an investment property while continuing to rent the home in which they live. ‘Rentvesting’ is seen by a growing number of people (almost a third of investors by 2016) as the answer to growing wealth and living where you want to live. If you are renting then you are able to choose where you want to live, and for how long, without the major expense and stress associated with selling your home and buying again. Selling your own home and purchasing another to live in will cost you about eight percent of your asset’s value, whereas if you were renting, the cost of a move would be mainly in the removal and delivery of your furniture.
A new trend is developing amongst younger potential buyers – growing wealth through starting a business. This is also a high risk strategy – but it is a way of turning a smaller amount of savings into something more substantial. Given the difficult job market, younger people are turning to entrepreneurship, seeing a business as a practical alternative to buying property. If you have the drive and determination, and the right business idea, you could grow a business quickly. It will not be easy – and there is a reasonable risk of failure, but many are giving this a go, as property will not deliver the same type of returns that you can achieve in a successful business. However – make sure that you are in it for the long haul, as it will need 5 years to get to the position where your business could allow you to purchase your dream home.
