Does the dream of owning a home feel out of reach in the current property market? You’re not alone. With median house prices in Australia’s major cities reaching record highs, potential homeowners are increasingly looking for alternative methods to get a foot on the property ladder. While the conventional pathway might involve saving up for a hefty deposit and securing a mortgage, several non-traditional avenues are gaining traction. Here's a closer look at some innovative approaches to home ownership.
Rentvesting
A term gaining popularity among young investors, "rentvesting" involves purchasing a property in an affordable location while renting in a more desirable or convenient area. This strategy allows you to enter the property market sooner, benefit from potential capital growth and rental income, all while living in a location that suits your lifestyle or work commitments.
Guarantor Loans
For those struggling with the deposit, some financial institutions offer guarantor loans. In this arrangement, a family member or close friend offers their property as security for your loan. This arrangement can potentially enable you to borrow up to 100% of the property value. However, it's crucial for both parties to understand the implications. If you default, the guarantor becomes responsible for the debt.
Shared Equity Schemes
Several Australian states, including NSW, offer shared equity schemes where a government entity or developer will co-purchase the property with you. Typically, the homeowner buys 70-80% of the home, while the co-purchaser owns the rest. This significantly reduces the mortgage amount needed. Over time, you can buy out the co-owner's share or sell the property, dividing the proceeds according to ownership percentages.
Buying Off-the-Plan
Investing in a property before it's built can offer financial benefits. Developers often provide discounts to early buyers. Additionally, during the construction phase, which might last several years, your property could appreciate in value. However, it's essential to be aware of the risks, including potential delays or changes in market conditions, particularly in the current climate, which has seen some construction companies collapsing. As always with property buying, thorough research and adequate protection are essential.
Property Investment Crowdfunding
A relatively new concept in Australia, crowdfunding platforms, also known as fractional investing, allow multiple investors to pool funds and invest in property. As an investor, you own a share of the property and will receive returns based on rental income and capital gains. While this doesn't provide direct home ownership, it can be a stepping-stone, allowing you to benefit from the property market's growth.
Government Schemes
The Australian government has introduced several initiatives to assist first-time homebuyers. The First Home Loan Deposit Scheme, for example, allows eligible buyers to secure a property with as little as a 5% deposit, with the government guaranteeing the remainder to avoid lenders' mortgage insurance. As of July 1, 2023, changes to the Australian Government’s Home Guarantee Scheme expanded the eligibility requirements for the Family Home Guarantee, the First Home Guarantee and the Regional First Home Buyer Guarantee. Learn more.
Property Co-Ownership
Buying a property with friends or family can be an attractive option to reduce individual financial burden. Pooling resources allows for a larger deposit and can widen the range of potential properties. However, it's crucial to have clear co-ownership agreements in place to navigate potential disagreements or changes in circumstances. From July 1 this year, friends, siblings, and other family members have been able to jointly apply for the First Home Guarantee and Regional First Home Guarantee. These schemes will also be available to non-first home buyers who have not owned a property in the past 10 years.
Navigating the path to home ownership in today's challenging market requires creativity and a keen understanding of available options. These non-traditional approaches not only provide potential solutions to the home-buying conundrum but also open doors to lucrative investment opportunities. However, as with all financial decisions, it's imperative to do your due diligence, understand the intricacies of each method, and consult with a financial advisor to ensure the best fit for your situation.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Please consider whether the information is appropriate to your circumstance before acting on it and, where appropriate, seek professional advice.
