With all the noise about avocado toast and property moguls, buying your first property might feel like a fantasy. Thinking outside the square might put property back in reach.
The average Australian house price is $679,100, more than 11 times the average annual income of $61,3081. If you manage to scrape together a 20% deposit, you’re looking at $133,940 – and there’s also stamp duty to consider. It can be hard to save a deposit while managing daily expenses such as rent, food and transport. But if property is still part of the dream, what are your options?
Tips for boosting your deposit
You’re already scrimping and saving on a tight budget, so what are some other ideas to boost your savings?
1. Moving back to the family home
Have you heard of ‘boomerang kids’? That’s when you move out of home for a few years, then move back home with parents to save money. While this is obviously dependent on a number of things – whether there actually is room at your parents’ home and they can afford to have you back (or whether they even ‘want’ you back) – it can be a great way of saving money. Added bonus? Spending time with your folks (depending on how you see it). If this is an option, you’ll want to set boundaries with your parents first such as cleaning duties, board costs, privacy. Remember to be considerate – this is their home and they are doing you a favour.
While not for everyone given the constant movement and uncertainty, house-sitting can take rent and utilities bills out of the equation for you, freeing up additional funds to put towards your deposit. Word of mouth is one way to find housesitting jobs but you might find more consistency by using one of the many online Australian companies that offer this service. The other bonus is that you might be able to try out areas you’d like to live in before you buy.
3. Explore other investment options
Leaving your money in a cash account earning interest is not the only way to build your deposit. There are a range of investment options around offering different exposure to different asset classes. However, you need to be aware of the risk levels and how long you want to invest for as higher returning assets tend to be more volatile (the value could move up and down) and are designed for longer term investing. Speaking to a financial adviser can be a helpful way of understanding what investments might be available and whether they are suitable for you and your plans.
4. First Home Super Saver Scheme
The Government recently passed legislation which allows you to use your voluntary super savings made on or after 1 July 2017 to save for your first home deposit. You could contribute up to $15,000 per year and $30,000 in total over your savings period either from your before-tax salary or after-tax salary into your superannuation (that’s in addition to any compulsory contributions you receive from your employer). Voluntary contributions under this scheme must be made within existing superannuation caps. The total concessional contributions you can make, from both compulsory employer contributions and voluntary contributions, including those made under the scheme cannot exceed $25,000 in 2017-18. Later, once you are planning to buy your home (any time after 1 July 2018), you can access what you contributed (up to the limits) plus any deemed earnings (calculated by the Australian Tax Office) towards your deposit2. Contributions made from your before-tax salary are taxed at the rate of 15%, compared to your marginal tax rate (although higher income earners may be subject to an additional 15% tax). Find out more.
This list is not exhaustive and you should still make sure you review your daily expenses as part of planning a budget to save.
Spreading your deposit further
Got your deposit together but conscious of your future mortgage repayments? Here are a few things to think about.
1. Start smaller
You don’t have to go straight for the limits of your budget to get the house you think you’ll need in 10 years’ time – you can start with what meets your needs right now and eventually save for that dream house down the track. This might mean a smaller unit, or perhaps moving a bit further out of the city. You might also want to factor potential stamp duty savings if your state government offers relief for first home buyers. For example, since 1 July 2017, first home buyers in NSW don’t need to pay stamp duty on homes valued under $650,000. That’s extra money you may be able to put towards paying your mortgage.
2. Renting out the spare bedroom – or garage
You might not have space to rent out from your new home but if you do, you could consider renting it out. Renting a spare bedroom to someone you can trust can mean additional funds towards paying your mortgage, taking some stress off. Or renting that garage you don’t use to commuters looking for parking could also help. Make sure you seek advice on any tax implications for receiving rental income (renting may also have implications for capital gains tax) and any tax deductions you might be eligible for.
This is where you buy a property and rent it out but you still either rent in the location you’d like to live in or live with family. The rent you earn on the property can go towards paying the mortgage. Depending on where and what you buy, this could be a more affordable way of getting on the property ladder than trying to live in the property you’ve purchased. As a note though, buying this way may mean you’re not eligible for any first home buyer’s grants or stamp duty exemptions you might otherwise have been able to receive, for example in South Australia (see details). Buying this way also doesn’t remove any maintenance and insurance costs and you should be careful of who you rent your property to – using an agent may be a valuable way of ensuring this but it also comes with agent costs. As with renting out the spare room, don’t forget you may need to pay tax on your rental income as above so seek tax advice and stay on the right side of the tax office.
Finding it hard to buy into property? Financial advice can help
Financial advice could help you achieve your real estate goals. It may provide the comfort that your financial plans are achievable. If you’re not on track, financial advice can help steady the ship and get the right strategies in place to help you achieve your property goals.
Financial advice can help you:
- Make the most of your money with some sound advice around budgeting and establishing savings plans
- Understand any government assistance you may be eligible to receive, such as First Home Owner Grants which some states and territories may offer
- Protect yourself and your assets by matching you to the appropriate insurance cover.
Define your future property dreams. Need help understanding your financial options? Contact us or speak to your Financial Adviser.
1 Reserve Bank of Australia, Australian Economy Snapshot, released 6 December 2017. http://www.rba.gov.au/snapshots/economy-indicators-snapshot/
2 The amount of earnings that can be realised will be calculated using a deemed rate of return based on the 90 day Bank Bill rate plus three percentage points (as per the Shortfall Interest Charge).
This information is current as at 7 December 2017.
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.
This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.
Any tax considerations outlined above are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.
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