It seems to me that getting onto the property ladder is never easy – for any generation. Whether you are looking to buy your first home or you decide to continue to rent or live at home and purchase an investment property first, it is a big commitment that generally brings with it some sacrifices. You will need to be financially disciplined, particularly in the first couple of years of the loan.
It is easy to find excuses not to start investing in property. Your income might not be stable, your circumstances might change, you don’t have the deposit. These all sound acceptable to a certain degree (although be sure that you are not just procrastinating!).
One excuse that, according to many property experts is not acceptable, is that housing is unaffordable. I attended Margaret Lomas’s seminar a couple of months ago and she reminded the audience of the reasons why this “unaffordable” excuse really doesn’t hold up. Here are the reasons she gave:
Even if you don’t follow the business media closely, you would have to have been living under a rock not to realise that interest rates are at an all-time low. Every month the Reserve Bank of Australia meets to decide whether to increase the cash rate (which in turn affects the interest rate lenders charge for home loans). For the past 14 months, the decision has been made not to change this rate, which has stayed at a record low. This means that the cost of borrowing has never been cheaper. Even fixed term loans can currently be found under 5%.
Another factor that new investors fail to appreciate is that the cost of living in some areas of household spending has actually gone down. Margaret refers to this phenomenon as the “Broom Index”. She explains that when she bought her first home the cost of a broom was about $20! Today, with freer trade and cheap imports, you can probably pick up a basic broom from the discount shop for $5. It’s not just brooms, of course, electrical goods have come down in price, furniture and furnishings can be purchased very cheaply, if you are willing to accept a lower quality, just to get you started. Communication is cheaper and easy. When I moved to Australia from the UK 25 years ago, it would cost a fortune (or so it seemed) to phone home. Now I can chat to my friends and relatives all over the world for a couple of dollars. And so this means that there is more disposable income left over after buying basic necessities to put toward a mortgage repayment, and even if the average house costs more, the average person can actually afford more.
Finally, you get more bang for your buck! Previous generations had smaller properties. In recent years, the trend has been to build larger homes – two bathrooms, four bedrooms. So you might be paying more for property but you are also getting more property for your money!
What does all this mean? Well, it means that although property prices may have increased at a greater pace than incomes, other expenditure has reduced. This frees up more of your income to put towards investing in property (either as a principal place of residence or your own home).
After reading these arguments against the ‘unaffordability’ excuse, what else is stopping you from starting on your property investing journey? Perhaps you just need a hand from some professionals who know what they are doing and are able to train you too? Visit Destiny.com.au
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