Yahoo Finance Young landlord reveals ‘alternative’ way to break into property market
Sharona Ghaem bought her first property last year and didn’t go down the traditional route to get there.
A Sydney woman has shared how she managed to crack into an increasingly expensive property market. Rising prices are forcing many Aussies to consider alternative pathways to achieving their dream of home ownership.
Like many young Aussies, Sharona Ghaem and her partner were finding it increasingly difficult to save up a 20 per cent deposit to buy a property. The 25-year-old said as soon as they thought they had saved up enough, they found themselves locked out due to rising prices.
“I currently live in the Hills area of Western Sydney and while I would love to live in that area, it wasn’t feasible based on what my partner and I could afford,” Ghaem told Yahoo Finance.
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Ghaem, who works as an operations manager, said she started looking into different strategies to enter the market, including buying an investment property in a cheaper area and using a smaller deposit.
While living with her parents in Sydney, Ghaem and her partner bought their first property in Blacktown - a $1.15 million five-bedroom home with two bathrooms plus a granny flat - with a 12 per cent deposit.
“I feel like if you don’t get into the market today, you’re always going to be running behind,” she said.
“I see my future as better in the long-term, and this investment is an investment in property but mainly my future.
“I feel like we can now better plan to purchase our dream home, as we now have equity from this Blacktown investment property.”
Ghaem is one of a growing cohort of young Aussies who are ‘rentvesting’, a home buying strategy where you purchase an investment property in an area you can afford while continuing to live in the area you want.
Ghaem said they chose Blacktown because it was a “key hub” in Western Sydney and the property is nearby to schools. She said they’ve already seen returns since they purchased the property in March last year.
“The rental yield is 4.84 per cent and the rent covers 72 per cent of our monthly mortgage repayments before expenses,” she said.
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LMI an ‘alternative pathway’
Along with ‘rentvesting’, new research shows more Aussies are now buying with smaller deposits - and copping lenders mortgage insurance (LMI) - to get onto the property ladder sooner.
Traditionally, buyers need to save up a 20 per cent deposit in order to avoid LMI, which can run into thousands of dollars. LMI is a one-off, non-refundable fee designed to protect the bank against the risk of you being unable to repay your loan.
New findings from LMI provider Helia found three-quarters of home buyer hopefuls are saving up less than a 20 per cent deposit due to increased cost-of-living pressures and rising property prices.
Around 55 per cent of buyers surveyed by the company said they paid LMI when purchasing their property this year, up from 36 per cent in 2023.
“LMI is an alternative pathway to achieve homeownership for buyers without a 20 per cent deposit,” Helia chief commercial officer Greg McAweeney said.
“LMI enables buyers to enter the property market, consider buying a larger home and, ultimately, start building equity sooner.”
How much is LMI?
LMI is calculated based on the size of your deposit and how much you borrow.
For the average $850,000 home price and a 15 per cent deposit, Helia calculated the LMI fee would be $9,156.
With a 10 per cent deposit that would increase to $18,819, while with a 5 per cent deposit it would be $33,935.
Strategy can ‘make sense’ but there are downsides
Ghaem said paying LMI allowed her to get into the property market and start building equity sooner.
“We feel we made the right decision – it made sense for us with the savings we had and the property growth we’ve had in just a year,” she told Yahoo Finance.
The average Australian house value increased from $767,000 to $848,000 from 2023 to 2024, according to CoreLogic data. That’s a price change of $81,000.
Meanwhile, the average unit value increased from $601,000 to $650,000 in the last year, an increase of $49,000.
While LMI can allow you to buy sooner, accumulate equity and beat price hikes, there are also some downsides to keep in mind
Momentum Wealth notes having a lower deposit means you will take on more debt. Additionally, many home loan providers offer lower interest rates for borrowers with bigger deposits, so you may end up paying a higher rate.
A bigger debt plus a higher rate can also translate to higher mortgage repayments.
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