Property guru Lloyd Edge shares the pros and cons of using super to buy your first home
A real estate expert who owns 18 investment properties has listed the possible pros and cons of dipping into his retirement to help put down a house deposit.
Lloyd Edge, a Sydney buyers agent, said using retirement will help thousands of Australians get into the real estate market for the first time.
It follows after Prime Minister Scott Morrison announced a new policy ahead of Saturday’s election in a bid to retain the nation’s highest job.
The policy will allow first-time homebuyers to withdraw up to $50,000 from their super to put toward a home deposit.
Lloyd Edge, a Sydney buyers agent, (pictured) said using retirement will help thousands of Australians get into the real estate market for the first time.
The main advantage of the policy is the ability to get first-time home buyers on the market sooner using their own money.
Mr Edge told the Daily Mail Australia that with the cost of living rising, people are struggling more than ever to save up for a deposit.
“Being able to access your retirement pension will be the added advantage that many young families need to buy their first home,” he said.
People are also likely to feel comfortable using their own money as a deposit instead of borrowing from the bank.
“Unlike other proposals to address the housing affordability issue, if you use super, you are still using your own savings and therefore will own your home once the mortgage is paid off,” he said.
For most people, your property will be your biggest investment and most important financial decision, reinforcing the importance of getting on the market as soon as possible.
“Since property value doubles roughly every 10 years, owning your own home is also an excellent investment that will set you up well for your financial future,” said Mr. Edge.
‘A key part of the Morrison government’s proposal is that if the house is later sold, the original $50,000 plus a portion of the property’s capital gain will need to be returned to his super fund, so his savings are still protected for retirement. , mitigating any long-term risk.’
What are the pros and cons of using super to buy a house?
Could get to market faster
You are using your own money.
it is a great investment
Your super will not be the same
It will not cover all additional costs
No investment diversification
But there is a certain level of risk and downside when it comes to discussing access to your super.
Mr. Edge said that if any amount of money is withdrawn, his super will never be the same.
“Even if you do manage to pay it back over time, because of the compound interest, your super won’t grow to the same level it could have,” he said.
“But what you lose in super potential you’ll more than make up for in future home value.”
The main advantage of the policy is the ability to get first-time home buyers on the market sooner using their own money (stock image)
Before considering withdrawing money from their super, first-time homebuyers should consider why they want to buy a home and think about the additional costs involved.
When purchasing a home, buyers are often required to pay stamp duty, property costs, a building and pest inspection fee, and the lender’s mortgage insurance (LMI) if the deposit is less than 20 percent.
“Super’s $50,000 might be enough for a deposit on an entry-level home (if your income can sustain the payments, of course), however it won’t cover the extra costs that are part of buying a home” , Mr. Edge said.
Over time, the money in your retirement account grows as you diversify into a variety of investments.
Edge said that buying a house lacks diversification in his portfolio since all the money is invested in a single asset.
Before you buy, it’s best to talk to a mortgage broker who will compare your expenses to your income to determine your borrowing power with the bank. But Edge cautioned against borrowing as much as borrowing capacity allows.
Before you buy, it’s best to talk to a mortgage broker who will compare your expenses to your income to determine your borrowing power with the bank.
But Edge issued a stark warning when it comes to borrowing money.
“It’s very unwise for people to borrow as much as they can afford, especially first-time homebuyers,” he said.
‘It is important that you always borrow below your maximum capacity and leave yourself a cushion, so that you do not find yourself in financial difficulties should your circumstances change or interest rates rise.
“By borrowing less, your stamp duty and deposit will also be less, which could save you some money that you can use for something else, like doing some renovations on your new home.”
To help those who want to invest in property but aren’t sure where to start, Mr. Edge wrote the eye-opening book ‘Shop Now: The Ultimate Guide to Owning and Investing in Property’.
FIVE GOLDEN RULES FOR INVESTING IN PROPERTY
1. Secure good financing: Mr. Edge recommends speaking with a mortgage broker who can tailor your loan options.
2. Know the exact costs: Along with stamp duty and transfer, there are often hidden charges such as strata and document fees. And make sure you have a savings reserve for unexpected costs.
3. Understand the location: A strong local economy, quiet streets, nearby services and transportation will make a difference in resale value.
4. Buy where there is room for development: A growing area with private and public infrastructure under construction will increase demand.
5. Follow the leader, not the herd: Experienced investors with proven track records will generally be ahead of the crowd. Following them will get you to an area before it becomes saturated.