Negative gearing: how young home buyers can beat investors at their own game
An inner-city cottage with a picket fence and little backyard was my long-held property dream. But on a single salary that dream was never going to be a reality. I had no choice but to revise my expectations and save for an apartment within a 25-kilometre radius of Melbourne’s CBD.
If I couldn’t beat the negative gearing investors at their game, I’d join them. I’d have to live in my investment for at least 12 months to be eligible for the first-homebuyer’s duty reduction, but it would ultimately become an investment and in time I’d return to a suburb closer to work, family and friends. First time buyers in NSW are also eligible for a stamp duty reduction when they buy new. This is how you can enter the negative gearing game and go from owner-occupier to investor.
Buy with your head, not your heart
After a few years of extreme saving, I was able to secure a two-bedroom apartment in Melbourne’s beachside suburb of Mordialloc. I bought in a small, solid block in a quiet street close to good schools, shops and a train station. Living alone in a suburb where I had no network of friends or family was tough, but I sucked it up. I knew that my living arrangements would change again soon enough.
When you’re ready, find a place to rent in your ideal location
It took almost two years before I felt financially ready to move. A two-bedroom cottage with a picket fence in Melbourne’s inner east came up and I signed a 12 month lease. I had a month to find a tenant for my Mordialloc apartment and move. Then I had to find a housemate to split the rent on my new place. Financially, this was a bit of gamble. You need to have a bit of cash in your back pocket in case things don’t fall into place straight away.
Get a tenant for your investment
I spoke to a few agents and appointed one who took care of the advertising and tenant administration. Depending on where you’ve bought, the right tenant might not present themselves straight away. In my case, I had three weeks of open for inspections before I found the right applicant. In the first month I had to cover my mortgage, the rent on my new place and moving costs. To say I held my breath while things fell into place is an understatement.
Find a housemate to split the rent with
Once I’d moved, I advertised for a housemate to share my rental property. I listed the spare room on Flatmate Finders and public Facebook group. There was a steady stream of requests to see the place. I found the right person who agreed to move in within weeks. In the meantime, I gave the room to a friend who needed a place to stay before moving to London.
It gets hard before it gets easier
I do wonder if all professional 30-somethings are being honest with themselves. I know many are truly unable to afford to purchase a home, but I fear some have accepted defeat and invested in their lifestyles instead. If you can afford to rent an expensive inner-city property, ride Ubers like they’re busses and fork out for annual international holidays, it might be time to reassess where you’re putting your money. The dream might look different for our generation, but it’s not necessarily over.