Three techniques to enter into the property market | Home loans

Saving approximately purchase property in today’s market can be an uphill struggle. Australian houses are already a few of the most pricey worldwide, and when you consider increasing rates of interest, it can seem like there’s no end to the obstacles initially home purchasers deal with. 

Things are specifically challenging if you’re a single debtor or you reside in an especially pricey city. But even then, it’s not as if the course to home ownership is shut off to you — it’ll simply need a little compromise.

So let’s check out a couple of techniques to make home ownership more possible for anybody anxious about being evaluated of the marketplace.

The term ‘property investor’ generally conjures pictures of rich males with stacks of money purchasing locations they’ll never ever live. However, investing (or rentvesting) can in fact help you get closer to purchasing your dream home, even if you start little. It’s everything about building up equity. 

Equity (likewise referred to as your loan-to-value ratio, or LVR) is the percentage of the property you own. When you secure a home loan, you pay a preliminary deposit; this develops your equity. Paying down more of your home mortgage indicates your equity grows since you own larger and larger ‘chunks’ of your home. Over time, your LVR will decrease. 

Having a low LVR can be an incredible tool for owning property. It can certify you for more affordable rates of interest when re-financing since lending institutions see you as a more secure financial investment. Banks might likewise let you utilize your equity (usually around 80% of your location’s worth) to fund another property. 

So, rather of taking a look at city property markets where your preliminary spending plan may not extend as far, think about investing regionally. This technique lets you get your foot in the door (even if you don’t intend to live behind said door) and build up wealth you can use later. 

However, there are a few cons to consider with this strategy. Chiefly: if you don’t intend to live in your investment property, you aren’t eligible for the first-home buyer grant. 

You must also be careful about which suburb you buy in and how much you front up for a deposit. If you buy with a small deposit in an area where values tank, you could slide into negative equity and become trapped with your home loan. But if you do your research, this workaround can be a clever method of climbing the first rung of the property ladder.

If you’re single, one way to bolster your home ownership chances is to team up with friends. By pooling your money with one or more people, you might be able to purchase a larger home or one in a more attractive location than you could have on your own.

Going down this route will require plenty of discussion upfront. You’ll need to make sure everyone has the same goals for the property (will you be living in it or renting it out?), and is on solid enough financial footing that they can keep up with the mortgage repayments.

You’ll also need to be clear on the risks involved. Buying property with friends can be messy if you’re not careful, especially if one person’s contributions are greater than the other’s, or if you opt for the wrong ownership arrangement.

So before you and your friends agree to anything, make sure you seek independent legal advice, and consider having a contract drawn up so everyone involved understands what’s expected of them.

Some questions to ask ahead of time:

• Will each person have an equal stake?
• What type of co-ownership agreement will you have: joint tenancy or tenancy in common?
• How will you split costs and rental income?
• How will you handle disputes?
• What happens if one party suddenly can’t afford the repayments?
• What happens if one party wants to exit the arrangement?

Having answers to these questions can help start everyone out on the same page.

Lastly, it’s essential to stay open-minded when buying property. While having a specific vision of your perfect forever home is helpful (especially when you run a property through an inspection checklist), you may overlook good opportunities for the sake of your dream. 

Instead, widen your perspective. Start with a “must-have” list (limit it to five essential features), then put the rest in a “would-be-nice-to-have” list. Renovations go in the second list, nonnegotiables the first. 

Doing this could mean honing in on something that’s smaller than you had initially hoped (a unit instead of a house), or in an area that’s further out than you would like, so long as it’s comfortably within your budget.

For some, it might help to remember that your first home likely won’t be your forever home, so it doesn’t have to tick every item on your wish list. Buying a manageable, cost-effective, if imperfect, property and selling it later is okay. What’s more important is getting your foot on the ladder and setting yourself up for financial security down the track.

This isn’t to say you should settle for a fixer-upper that won’t suit your needs (a bad investment is still a bad investment). It’s more about managing expectations and embracing the process.

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