01
March
2016

Can’t afford a property?

It is not the only way

I’m not giving away any secrets by saying that young people are having difficulty getting into the housing market, property prices have risen substantially in the past 2 years, especially locally and for many buying that first house is just not an option at the moment.

Purchasing a property is certainly a great strategy, particularly your primary residence, in doing so you effectively future proof your biggest cost and over time likely to have your asset grow, in is a proven method to build wealth, but is not the only method.

There are 2 main barriers to entering the property market, the first is the large upfront deposit required, and the second is the ongoing cash flow required to meet the repayments.

There are many people that are in a position to meet one, but not the other; there are strategies available for these people to build wealth in other ways.

Recently I saw a young couple who had inherited some money; they had more than enough for a deposit, but had just started a young family and were living on a single income and were not in a position to meet the ongoing repayments, especially if interest rates increased.

A couple in this position has other options, in this case the couple were hoping to re-enter the property market when the children were old enough to go to school and became a 2 income family again. So we developed a low risk investment strategy using managed funds to see these funds increase over the next 3-5 years without taking on too much risk. Managed funds provide the opportunity to invest in a wide range of asset classes, with different risk and growth characteristics, and achieve diversification without having to hold an array of investments that are difficult to follow.

In this case the couple are still building their wealth, but not putting themselves under financial stress in the short term.

The more common situation for young people today is having a cash flow surplus that would comfortably meet the repayments required on a property, but they are unable to enter the market due to not having a deposit.

In this situation it is necessary to utilise that excess cash flow to build wealth, there are a number of options in this situation.

The taxation advantages provided by Superannuation salary sacrifice maybe attractive for some, but for most, there are more immediate goals that take precedence.

A simple savings plan is usually the backbone for these strategies, with the underlying asset ranging from cash based bank account to an aggressive growth strategy, a number of factors determine what is appropriate for the individual. Simply saving money regularly and systematically builds wealth quickly; the earnings from the investment are an added bonus. This sort of strategy can be a pre-cursor to purchasing that property that was the original goal.

In this situation it is even possible to start a gearing strategy to accelerate the wealth building process, this is one of the great benefits of property, the ease of gearing. Geared strategies aren’t for everyone, and the potential consequences should be heavily considered before implementing.

The important thing to remember is that although buying that property is a great strategy for a lot of people, there are other ways to build wealth if a property is not suitable for your situation.

Author; Alex McKenzie Categories: Future Financial Services Blog

About the Author

Alex McKenzie

Alex McKenzie

Owner at Future Financial Services

Past:

  • Paraplanner at Zammit Partners Investments
  • Unit Trust Administrator at Colonial First State

Education

  • University of Western Sydney
  • Penrith High

About

As a Financial Planner I help people to achieve what they would like in life. This involves helping you to identify the things in life they would like , developing plans to help achieve them and strategies to protect what you already have. We do this by providing Financial Advice to guide you through your life stages.

The financial planning process involves determining a clients current situation and financial objectives and tailoring strategies to assist in best achieving those objectives.

I am an expert in superannuation, investments and insurance, these are tools we use to help you achieve your goals.

I aim to use my knowledge of superannuation, taxation and Centrelink to efficiently use your assets and income to achieve your financial goals.

Retirement and pre-retirement planning, wealth creation, asset protection, insurance planning and estate planning are all areas of advice that I provide.

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