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3 steps to get on the property ladder when you’re renting

Posted: 29 July 2022 1:26 pm
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It's easier said than done: Just cut back on some costs, put some money away and then you're on track to get your dream home.

If you're like me, things didn't quite go that way. Like most things in life, it can take much longer than we hope to save a big sum of money.

It also doesn't have to be about just building up the money in a savings account, but also making it work harder.

When I was struggling to save for a home, I thought there must be a different way to do it that would help me feel motivated and also fast-track the process. So I came up with a 3-step system called CAN, which helped me to stay on track with my savings goal:

  1. Choose – Pick your savings method and do it.
  2. Amplify – Make your savings work harder.
  3. Next – Keep going while you have momentum.

This system meant that I could see progress little by little and in the long-run it started to pay off. Anyone can use these steps to get to the other side of home ownership.

1. Choose – Pick your savings method and do it

This is about figuring out what type of saver you are now and choosing what type of saver you want to be. So here are some tips for different types of savers.

  • Pay yourself first

This method means you pay yourself first and this amount must be calculated to ensure that it covers everything you need it to (rent, petrol, public transport, your daily coffee, etc).

So pay yourself first, then pay your rent and bills. Everything else goes to savings.

Tip: The challenge with this method is to allocate enough money when "paying yourself" and accurately calculate your expenses so that you don't have to dip into your savings.
  • Save anything left over

This method is the opposite of paying yourself first. It means you spend normally and then save everything that is left over at the end of the pay cycle.

While this sounds appealing, there is little sacrifice and you may find you aren't saving anything. However, if you are frugal with your dollars, maybe this is the care-free savings method for you.

Tip: If your pay is variable, then an approach with higher discipline could give you a better savings result.
  • Allocate every dollar

This savings method may be the most disciplined and the most rewarding. It requires every single dollar of your earnings to be pre-allocated.

If you have heard about the "envelope" or "money jars" method of saving, where each pay is allocated to different labelled envelopes, for example "savings", "bills", etc, this is the same idea.

Direct debit and automating your "envelopes" is your best friend here. As soon as your pay comes in, every dollar must be allocated and sent where it needs to go. For example: Rent, phone bill, Internet bill, electricity bill, savings account and spending account.

Tip: This savings method requires you to clearly distinguish between needs and wants. Be sure to plan for a spontaneous spending budget too so you don't dip into your savings when things come up.
  • See what happens

This savings method is as relaxed as its title suggests. It simply relies on a shift in mindset.

Perhaps you think twice about going out for breakfast on Sunday morning, or you abandon fast fashion. But this method certainly won't get you to your savings goals as fast as some of the others.

Tip: If you want to save faster, consider another method of saving.
  • Set a date and a savings goal

This savings method requires you to set a target date and savings goal. By doing this you can work out how much money you need to put into savings each payday to reach your goal.

To make this method even easier, some banking and budgeting apps have this function built in to them.

Tip: The key here is to automate your savings so once it's set up you can set and forget.

2. Amplify – Make your savings work harder

So, you've picked your savings method. The next step is getting to a point where you have enough to make it work harder.

Savings account interest rates are still relatively low and leaving it in the bank means your money won't grow much beyond what you keep adding in. So now we come to the circuit-breaker for amplifying your savings.

The key is to grow those savings faster and at a rate that matches property price growth. To do that, your savings need to be invested in ways that get the same (or a higher) return than property.

Investing in property is something that I personally have a higher comfort level with because property is a tangible asset, which in the long term (over decades) grows. And with property prices growing faster than wages, it makes sense to use property as a way to build equity (value).

Property also has the benefit of leverage, which means the growth you enjoy is on the full value of the property, not just on your deposit. So the returns can be magnified compared to investing in shares (where you only get the growth on what you invest).

3. Next – Keep going while you have momentum

With savings, it can feel like the progress is too slow.

I struggled with how slow saving for a deposit was, and that's when I started to explore options of co-ownership as a way to get onto the property ladder. I found there wasn't a safe or simple way to do this where I was properly protected legally.

For years, I thought that this option would appear, and that someone in the industry would make co-ownership accessible. But as this didn't happen, I decided to take the leap and create Proppie. This is a platform that helps people buy property in teams, with the full legal protection for getting in and out of the property separately.

While buying half a property is not what we dream of, it has become pretty clear that property is out of reach for many people. So we needed a new stepping stone.

Co-ownership and mortgage-sharing means that you could get into property at half the cost, in half the time. Then you can use that equity to buy a full property. This is how I got my start in property.

This means you've put your savings to work. It's growing faster than the interest you'd get in a savings account and faster than the average pay-rise. And in this way, you have just used a stepping-stone approach to get a foot into property sooner than you would have if you'd tried saving a 20% deposit on your own.

It's become really clear that we are in a different time and it's hard. And to break free from the rental cycle we need to find new ways to break into property. Sharing is the new way in.

Check out Finder's guide to fractional property investments to see how you can get onto the property ladder with as little as $100.

Ayumi Uyeda is the founder of Proppie, a mortgage-sharing platform designed to help people get on to the property ladder by buying in teams.

Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.

Images: Getty Images, Supplied

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