“Former Domino’s pizza delivery boy who earned $10 an hour owns 14 renovated properties and is now semi-retired at the age of 28 (and he says you can do it too)” read the headline this week.
And all the renters groaned.
Okay, so paint me purple and call me Dorothy but after more than a decade of doing this, my bulldust detector starts beeping whenever a young buck appears in the press crowing about owning 14 properties and retiring before he’s 30 … especially when his version of ‘retirement’ is running a property investment advisory business. Or maybe I’m just a dinosaur?
Either way, this type of ‘property porn’ always sucks in the eyeballs — and with good reason.
House prices are our Vietnam … man.
The war between landlords and renters has been a bitter and bloody two-decade-long battle. Over that time home-ownership rates of people aged 25 to 45 years have been in free-fall. The result being that young people are now increasingly middle aged before they get the keys to their first home.
40 is the new 30
According to research last year from ING, the average age of a first home owner in Australia is 38.
A generation ago you’d hope to own your own home outright by 40. Today you’re just getting started — so you are basically the housing equivalent of Janet Jackson (who announced this week she’s pregnant … at 50).
And of course the banks can, and do, discriminate against older first-time borrowers. It’s simple maths: if you’re 40 and you take out a 30-year loan, you’ll still be working at 70 … or the same age that Janet will be on her kid’s 21st birthday.
So is there a way to fast-track it into your first home?
Enter the bank of Mum and Dad.
The Quickest Way into Your First Home
Research released this week from Digital Finance Analytics (DFA) estimates that the number of first time home-buyers getting a leg-up from their parents has increased from just 3 per cent six years ago to more than half today.
In fact, DFA found that over two-thirds of older homeowners who refinanced homes worth more than $750,000 did so for reasons that included helping their kids.
And how much are they giving?
DFA states that at the start of 2010 parents were handing over $23,000 — today it’s more than $80,000.
There are three ways parents give that gift.
They can guarantor their kids’ loan by taking out a second mortgage on their family home (and you’d be totally bonkers to do this).
They can offer a limited guarantee — say for a 20 per cent deposit. This has a couple of advantages: the kids won’t have to pay expensive Lenders Mortgage Insurance (LMI), and the parents know exactly what they’re on the hook for. Yet in the words of Pauline, “I don’t like it.”
Or retired parents can take a lump sum out of their super and hand it over to their kids to use as a deposit. That’s the cleanest option, though I won’t be doing it for my children.
A couple of reasons:
First, if a bank that earns $10 billion a year in profits deems your kid a risk — why should you stump up?
Second, mixing money with family is never a good idea.
For the parents — many of who are trying to fund their own retirement — it sets a dangerous and expensive precedent for other children.
And for the kids, having your parents as your financial backstop could invite ‘boundary issues’…
“You know your mother and I didn’t lay down carpet until 1982? We sat on a cement slab for the first four years of our marriage. It gave your mother piles yet she’s still around, isn’t she? But you kids have to have it all now, doncha, with your fancy carpet and curtains.”
“Why are you going on an overseas holiday / buying that car / talking to me like that … when we helped you out with your home? Is that all the thanks we get?”
Planning for the Worst, Hoping for the Best
I’ve been called everything under the sun for my steadfast advice to save up a 20 per cent deposit. People have accused me of being out of touch. Mortgage brokers disagree and say ‘just borrow 90% … or get an interest only loan’. Real estate agents say ‘house prices are going up faster than you can save’.
None of these arguments change my advice.
The fact is we live in a country with the highest household debt in the world — at a time when interest rates are the lowest point in history. All I’m concerned with is keeping first home buyers safe. And the best way to prepare yourself for taking on a massive 30-year commitment is to cut the apron strings and spend three or four years saving like mad.
And what about our property-mogul pizza delivery boy?
Well I called him up and had a chat with him this week — and I’ve got to admit that I was impressed.
When he started out, he lived with his parents and saved up a 20 per cent deposit with a low-paid job (and they don’t come much more low paid than delivering plastic pizzas), and he bought a little unit in the boonies. In other words, he scrapped, saved, and made things happen.
And then … it seems the Capricciosa went to his head. He just kept on leveraging up. Now, owning 14 properties on a low income at a time when interest rates are at all time lows (and have to come up some time) is not something I’d do. Then again, what’s the worst that could happen? He could go bust and … end up delivering pizzas for a living.
Still, hats off to the kid — he’s got more guts than a freshly delivered Domino’s MeatLovers.
Tread Your Own Path!