Residz Team 4 min read
Recent research by NAB shows First Home Buyers (FHB) are getting creative about how they could buy a property.
Could rentvesting or share ownership be an option for you? Here we set out some of the research and a few pros and cons to consider.
It’s a compromise, but it’s also a start
With the soaring cost of living and rising interest rates, it’s no surprise that younger Australians are turning to share ownership to get a piece of real estate action.
The fact is, First Home Buyers will probably have to compromise on something to have any chance of buying a home.
NAB found that outside of dropping their price range, buying with another person tops the list of compromises Aussies aged 18 to 29 are prepared to make to get into the market, says the NAB.
“Younger Australians aren’t letting meeting a partner or getting married later in life hold them back from owning a home now. People are definitely looking at their options and casting the net wider when thinking about who they could buy with,” says NAB Executive, Home Ownership Andy Kerr.
Share ownership pros and cons
So, is share ownership a good idea? If you’ve got a friend or two who are keen to buy a property with you, should you go ahead? Here are some things to consider.
Pros of Share Ownership
Affordability: It’s more affordable to buy some of a house or apartment and not the whole thing, and it allows you to get a foot in the door of the property market with a lower upfront investment. By purchasing half (or a smaller fraction) of a property, buyers can spread the cost of the investment among a group of people.
Access to the property market: If you can’t afford to purchase a property on your own, and you’re not in a relationship, it gives you another option.
Potential income: If you rent out the property you can get a portion of the rental income.
Potential capital gain: If you sell the property at a later date for a higher price, you may make a profit on your initial investment.
Cons of Share Ownership
Reduced control: When you buy a property on your own you can make all the decisions about the property. With share ownership you may not have full control over decisions about the property.
Risk: As with any investment, there is a risk involved with share ownership. The property may not generate the expected rental income or may decrease in value, leading to a potential loss of the investment.
Test of friendship: Share ownership in property could test, or even destroy a friendship, if it goes wrong (or even due to minor disagreements along the way). Being a major investment, with a lot of money at stake, the effect on your relationships is something to carefully consider.
NAB’s Andy Kerr said regardless of who you were buying with it’s important that you talk about how you’ll jointly save for a deposit, agree on the property and meet ongoing costs.
“As buying a home is the biggest purchase most of us will make, it’s also worth considering getting a solicitor involved for additional comfort,” he said.
Rentvesting pros and cons
NAB found almost a third of potential home buyers were willing to buy and rent out the property initially.
Many of these buyers will choose to live at home for longer with their parents. Others will opt for “rentvesting” by buying a property in one location to rent out while they simultaneously rent a property to live in a different location.
Pros of rentvesting
Affordability: Like share ownership, rentvesting can allow people to enter the property market sooner than if they were to buy a home to live in. This is because they may be able to afford to buy an investment property in a more affordable location, while still renting in a more expensive area.
Flexibility: Rentvesting provides greater flexibility than owning a home to live in, as renters can more easily move to another region or suburb if they need to.
Investment Potential: If the rental property is located in an area with strong capital growth, there is the potential for the property to appreciate in value, leading to potential long-term gains.
Cons of rentvesting
No Capital Gains Tax Exemption: If a person decides to sell their rental property later on, they will be liable for capital gains tax on any profits they make. This is unlike a principal place of residence, which is generally exempt from capital gains tax.
Dual Payments: Rentvesting may require the person to make two payments (their own rent and the gap between their investment property income and the mortgage payments), which may make it difficult to save for a future home to live in.
Limited Control: The home buyer remains a renter where they live, giving them limited control over their living environment. Unlike an owner-occupier buyer, rentvesters are still answerable to, and rely upon, a landlord to address any issues with the property they live in.
Higher Costs: Investment home loan rates are typically higher than interest rates on owner-occupier loans (however there can be tax deductions on an investment property too).
Compromises on size of loan and size of land
Andy Kerr infers the trend towards share ownership and rentvesting indicates a willingness of First Home Buyers to look at property despite the economic conditions.
He said the most common compromise (41%) buyers of all ages are willing to make is the amount they’re willing to spend;
About one in three would trade off the size of the land, garden or outdoor space (31%), while about 28% would give up their preferred location;
One in 10 aren’t willing to budge at all on their wish list.
“Interestingly, our data shows that first home buyers aren’t being deterred from entering the property market, despite the market softening overall and rising cost-of-living. Buyers are just thinking outside of the box to make it happen.”
Residz helps reduce buyer stress
Residz can help buyers and sellers reduce the stress: