The ever elusive Australian dream is getting harder for everyday Aussies to reach.
Statistics suggest that Aussies are becoming home owners at a later age and committing to higher house debt than the generations that went before.
Many are forced out of the market completely by soaring property prices that are out of reach for the average income earner.
In contrast the massive property boom of the 50’s and beyond saw even migrant families in the lowest income earning bracket entering the property market in high numbers. Following the governments heightened immigration campaign after World War II and the sharp rise in families migrating to Australia, low income immigrant families were able to purchase property relatively quickly after settling in Australia.
Families from culturally diverse backgrounds such as Eastern and Western Europe, India and China, rapidly became home owners, often going on to accumulate further properties, from what would be considered to be meagre earnings and beginnings.
How were these homes bought?
New Australian families were able to take advantage of the property market, in part because of the vast cultural differences. Many had a different concept of the family unit and different ideas around spending, saving and investing, usually working for the benefit of the family rather than the individual.
There was a tendency among new Australian families to live together, save together and pool their money and resources. If you come from a migrant family, you’ll know exactly what I mean. It would not be uncommon for 3 generations to be living together. Sharing costs such as housing and home expenses made saving easier and faster (not to mention the free child-care provided by the grandparents!).
Once the main family home was secured, it was common for each family member to contribute to property for each of the siblings.
By living together and pooling resources, many families were able to achieve financial security and home ownership within a relatively short time frame. They were able to buy their own homes faster, and pay them off sooner.
Savings were pooled and frugality ruled – life’s comforts and pleasures such as going to the movies, eating out, splurging on the latest cars, clothing and gadgets where shunned in favour of home-cooked meals, entertaining at home or at friends’ and gearing the kids up in hand-me-downs, sales items or second hand buys. Nothing was purchased on credit, and cars always bought second hand rather than off the factory floor.
How is this relevant to me?
While a lot of us would be hesitant to compromise on what we perceive as our joys and pleasures in our life and the standard of living we are accustomed to, there is a lot we can take from this approach.
It seems that many Aussies are discovering the potential of partnering up and pooling resources with like-minded family or friends, as a means of gaining a foothold in the ever elusive property market and limiting their individual financial burden.
Single or solo purchasers can get into the market with an investment partner(s)
Generally, couples are at an advantage when buying property. They have greater borrowing power due to their extra earning capacity, and they share costs such as the deposit and mortgage repayments.
But couples are losing the advantage over their single counterparts, as more and more singles and solo investors are teaming up to buy property together.
Like the favoured strategy of immigrant families, investing with like-minded family or friends is becoming increasingly common for everyday Australians.
Multi-generational households on the rise
Additionally, although still far from the norm, there is a trend in Australia towards multi-generational living, spurred by higher living and property costs. Families can support each other and home designers are now catering to the market with specially designed, multi-generational homes.
But you don’t need to buy property with the intention to live in it – you can partner up to buy an investment property that will be rented to a third party, or a home in which only one party will live in.
Solo investors may find it difficult to get a loan by themselves if they don’t have a high enough earning capacity. It is often easier to get the loan approval if they partner up with someone else because from the banks perspective the risk is shared with the investment partner.
Investing with a partner means that the substantial upfront costs involved in purchasing a property are shared, not to mention the ongoing out-of-pocket financial costs.
Upfront costs that can be shared include:-
- the deposit;
- stamp duty;
- legal fees; and
- mortgage application fees.
Ongoing costs that can be shared are:-
- mortgage repayments;
- insurance fees;
- maintenance and repairs;
- upgrades and renovations;
- property management fees.
Importantly, one of the biggest advantages to investing with a partner, is the increased borrowing capacity, and as such, the ability to purchase a higher quality property in a more desirable location.
Major banks are catering to joint investment strategy
Traditionally there has always been one downside to investing in property together, and that is each party is jointly and severally responsible for the repayment of the loan. This means either party is responsible for the whole debt if the other party is unable to meet their commitments. This can be a major stumbling block and rightly a cause for concern for many people.
Is this the answer to gaining a foothold in property?
It is one possible solution. People from all walks of life, from young single siblings, friends, parents and children, to older divorcee’s, are finding the benefits of investing as a team too good to ignore.
And once you get started in the property market, it is easier to accumulate additional properties over time.
How would it work?
Investing with others could take the form of:-
- parents buying property with their child/ren relying on the equity in the family home;
- like-minded single friends investing together;
- siblings pooling their money to buy and accumulate property together.
Make sure you and your investment partner are both in agreement
To maximise the substantial benefits of investing with a partner, it is important to go over your strategy in detail. Think through issues that may potentially crop up over time (what happens if one party needs to sell?) in advance and put your agreement in writing. This will help ensure that your partnership arrangement continues to flourish long into the future.
See here for a further discussion on issues to consider when partnering up to purchase property.