First Home Buyers: Getting Into The Market
There is no doubt that getting your foot in the door of Australia’s property market is far more challenging than it was 20 years ago. It can be daunting and confusing in the beginning, yet with thorough research, long-term planning and the right advice, you’ll be prepared to take a leap towards property acquisition and begin investing in your future.
We’ve put together five points for you to consider before purchasing your first property.
1. Dream Home vs ‘Rentvesting'
It is important to understand investing and to ask yourself what you want to get out of buying a property. Knowing this will help to shape the research you’ll need to conduct. We’re big on the idea of rentvesting, renting where you want to live and buying where you’ll make money. Say you’ve got a $600k budget, if you're spending that money in South Yarra, you’ll get an apartment where your capital growth will be minimal. You would be better off renting in South Yarra and buying a $500k property in Geelong where capital growth will be high. Purchasing land will always outgrow an apartment. Your first home might not be your dream home, your dream home might be your 3rd or 4th purchase. Think long term, 10 years ahead, and be wise.
2. Research
Research the areas where you would like to buy, the recent trends of various locations, and what type of property you can afford. It’s important to find locations where there is strong economic growth (population, government/private expenditure). With economic growth comes an opening of job opportunities which leads to population growth and therefore, the need for housing. Knowledge is power, especially when it comes to the property market. When it comes to investing, you want to invest somewhere where that there is trajectory for growth, in places where the demand will be in future. This is how to build equity fast.
3. Borrowing
Your income, expenses, debt and credit history will determine how much you can borrow from the bank. Understanding your borrowing capacity is fundamental, so you don’t waste time looking at properties that are outside of your budget. Be mindful of the additional costs that come with purchasing a property like stamp duty. There are plenty of lending options on offer so doing your research is imperative. Remember that just because the bank is willing to lend you $600k does not mean you can actually afford that money. Keep in mind the additional costs that come with owning a home such as council rates and utilities. It can be helpful and time-saving to have a trusted broker to talk you through your options. You may be eligible for the First Home Owners Grant. The $10,000 grant is available when you buy or build your first home. The grant increases to $20,000 if you buy or build in regional Victoria. Your first home can be a house, townhouse, apartment, unit or alike but the property must be valued at $750,000 or less. There are also a range of additional government incentives available for first home buyers.
4. Budget and Save
Saving can be difficult, although in order to acquire a sufficient deposit, sticking to a budget is essential, unless your parents have got your back. Set solid boundaries for your spending, otherwise bringing your goals to fruition will be a struggle. Make legitimate sacrifices to your lifestyle, something has to give if you want to get into the market sooner rather than later. If you don’t save 20% of your deposit, you’ll end up having to pay Lenders Mortgage Insurance which will mean you’ll be paying more in the long run. Get into the market as soon as you can, but only if you're making a well-informed and worthy purchase.
5. Purchasing
Look at a variety of locations and consider growth prospects like desirability, distance to the CBD, public transport, schools, parks, etc. If you fall in love with a property, chances are that other buyers have too, so having all of your paper work together as well as loan pre-approval will put you in a better position to make the property yours. If your heading to an auction, make sure the first one you attend isn’t the one your participating in. Learn the details of how an auction works before you begin bidding. If the property is up for private sale, you’ll usually have more time to speak with the real estate agent/vendor and negotiate the conditions. You’ll also generally have a cooling off period where you can change your mind.
When looking into purchasing property, take your time and conduct thorough research. Excitement and urgency can turn what you thought might be your dream home into a nightmare. Be sure to consider everything from the type of property you are after, to what you can comfortably afford, as well as whether it is going to give you a sizeable return in the future.
If you know of someone who is looking to buy their first property, Michael is willing to answer questions.
Send him an email to michael@propertyguideau.com.