Onyx CEO Greg Clough writes about his experience of helping his daughter and other young clients get into property early.
You can understand why many GenYs and Millennials are despondent about buying a home, but in my view their pessimism is misguided, having been fuelled by journalists with limited understanding of how the property and finance markets work. There are many pathways to home ownership, but most people haven’t been shown all the options.
Have your property with smashed avocado
Writers on this issue typically launch into a discussion on not buying that daily coffee or ordering smashed avocados so you can save for a deposit. Frankly I think that launching into this approach is simply demotivating for most young people. While not walking away from the need to budget I think there are more productive conversations about partnerships, entrepreneurship and investment which are going to be a far more empowering.
Conversations with my daughter
Ten years ago I had a conversation with my then early 20s daughter who had a modest income and very little money in the bank. I explained that if she just walked into her bank branch she would certainly be rejected for a loan, but I outlined a number of alternative ways to go about it.
Now in her mid-30s she has equity in a property thanks to its capital growth over the last ten years. This will provide a platform for her to buy her family home. The pathway to property ownership will be different for each person but for her it was to partner up with a cousin who was around the same age.
Beyond inter-generational battles
Contrary to popular journalism the property marketing is not an inter-generational battle but more an opportunity for intergenerational collaboration. In all honesty, it always has been. Many of my friends back-in-the-day got a start with a deposit on their home with help from their parents.
For those of us who are parents of 20-somethings we have a role to give them a leg up into property as soon as possible. This could involve the bank of Mum and Dad but more importantly it will involve encouragement and education. Remember, as good as our education system might be they still don’t teach the life skills like buying your first home.
Why 20-somethings should buy sooner than later
There are some really good reasons why a 20-something should be interested in buying a property before they or you think they might be ready.
Firstly standing still is going backwards. Property prices continue to increase – especially in popular locations – so the longer you wait the higher the purchase price becomes.
Doing something in your 20s will set you up for later when your lifestyle is more expensive. Your 20s provide an opportunity to build equity in a property which can be used for a deposit on a future family home.
Buying an investment property is a great option in your 20s. You can buy to invest wherever is best financially rather than where you want to live. Rent your lifestyle, or even better stay at home with the parents to keep costs low.
The important thing to remember here is that there isn’t one single property market, there are lots of them. Buying to invest gives you more choices and remember it’s a logic decision not an emotional one about where you want to live.
So how would you approach an early entry into property?
Well going straight to your bank is probably not going to be the best option. The home loan market is constantly changing because banks are adjusting to market conditions and their own risk profiles. This means that today one bank might be offering great deals to investors but next month they might decide they have too many investors want to attract other types of borrowers. You need to know which lender is offering the best deal to suit your circumstances and that may not be the one your banking with right now.
You don’t need to go it alone. Partnering with someone else to get into a property is a great option especially before you start having a family. What one person lacks on their own – say for example a deposit – the other person may be able to cover. These partnerships might be with parents, another family member, a friend or even someone on a purely commercial relationship.
I’ve also seen situations where parents have purchased a property for their adult children to live in and eventually own. The kids pay the mortgage and the parents provide the deposit and borrowing capability. Given rising property prices this might be a better form of inheritance.
Importantly if you are entering into a “property relationship” with anyone, getting the right advice before you buy on the ownership structure and an agreed approach to exiting is vitally important to your financial success.
Being entrepreneurial in the property market
These are just a few approaches that you could consider but everyone’s situation is unique and there are many more ways to go about being entrepreneurial in the property market. I understand that the price tags on property these days in suburban Melbourne and Sydney can be pretty off putting but we also live in a more flexible and fast-moving world that offers many more opportunities for innovative young adults and their parents.
The best place to start is a conversation with a mentor who has plenty of practical on-the-ground experience. Feel free to call me for a chat anytime on 0409 029922.