Why first home buyers would want to raid their super when there are better ways to get a foot in the door so to speak I'll leave for Joe Hockey.
- Money's Borrowing Power Calculator lets you work out what mortgage is right for you.
It sounds weird but the best way to save is by borrowing. Or rather it's a more respectable form of gearing which is using a loan for investing.
That would get you closer to home ownership not to mention a decent retirement since you wouldn't be stealing from your super. How's that for killing two birds with one stone?
It might mean living longer with the oldies to save on rent, though bear with me for other options.
Where was I? Oh yes, aiming to own your own home still makes sense because it's the most tax advantaged investment you'll ever make. There's no tax on what you save in rent for starters. Although there's interest instead think of it as downpayments for an asset. Economists even argue that not paying rent is earning income in kind and should be taxed – yes, they're serious.
But the best thing about home ownership is there's no tax on the capital gain when you sell. By the way, if you don't sell it isn't counted for getting the pension when you retire, though I'll stick my neck out and say that'll change sometime this century. Remember you read it here first.
The other financial and lifestyle merits of owning or renting can be argued til the cows come home.
So I'll just say that since 1960, rents have on average risen 1.3 percentage points a year faster than inflation, according to a Reserve Bank report which concluded that "buying is less expensive than renting for anyone expecting to stay in their home for more than eight years".
Anyway you'll reach the tax haven of home ownership faster by gearing either in an investment property or shares than saving alone. The interest is tax deductible, as is the cost of maintenance for a property, and when you sell there's a 50 per cent discount off capital gains tax.
The beauty is that rates are at an historic low where, judging by the gloomy official forecasts of economic growth, they're likely to remain for another couple of years. You don't need me to tell you that also makes it harder to save for a deposit, a double whammy when property prices are rising by proportionately more.
But gearing is more your triple treat: falling costs as rates drop again, a higher income as rents rise, and more equity as values increase.
True, you'll still need to save for a deposit but I'd be asking around the family for a little help there. Oh sorry, you've already done that? Well, there are always birthdays.
At least you won't need as much since an investment unit will require a smaller mortgage than your much dearer dream home which you'll quickly outgrow. Trust me.
Even better if you can afford a traditional mortgage from the extra cashflow rather than an interest only one preferred by investors desperate to stretch the tax break as long as possible.
And while you'll probably start off negatively geared, you don't want to make a habit of that. Losing money just for a tax break is for losers. You want a place that'll be in demand to ensure a good growth in rents.
That's all very well but how does being a landlord get me a home?
Because the escalating equity as property values rise is as good as having a deposit for your own home. And banks just love a record of meeting loan repayments.
That reminds me. In the experience of mortgage broker Tony Harris of Easy Living Finance, banks are more impressed by a savings record – or a property investment – than worried by things such as credit card debts so long as you've been meeting the minimum repayments.
He also suggests teaming up with friends or family and buying a property jointly as tenants-in-common. Just get everything in writing.
