House prices in Melbourne and Sydney have surged 41.3 per cent since the start of the growth phase in 2012, with strong gains in most other capital cities as well. Many young first home buyers may find themselves struggling to enter Australia’s housing market.
While it may take some time to restore the market balance, Brenton Tidow, founder of Abakus Apps and a property investor under 30, encourages millennials to not fall into the trap of believing that young people can’t buy property in today’s market, it is simply not true.
“It is concerning that an increasing number of first home buyers are now in their 40s. For many buyers, the dream of purchasing a property may seem out of reach, and this is understandable as prices rise and competition intensifies. While the prospects of being a lifelong renter are very real, this does not need to be the case.
“First home buyers – including young Australian’s in their 20s and 30s who are earning an average full-time income – can crack the property market if they are serious and approach the process with an investor mindset. It can be done but it takes a significant commitment,” says Tidow.
“For instance, I started saving when I was 15 before buying my first property at 21. Six years later, I’ve grown this into a five property portfolio, releasing equity from one property each time to avoid dipping into my own pockets, while still growing the equity base of the other properties within the portfolio” adds Tidow.
Ultimately, if new buyers want their dream of purchasing property to become a reality, Brenton believes buyers need to get smart about how they spend their money, as well as do their due diligence when it comes to seeking the right advice and investigating the types of properties that they can realistically afford.
How should first home buyers prepare to conquer the market?
Tidow offers five tips for new buyers to use as a guide as they prepare to enter the market:
“I encourage new buyers to consider properties that are not their first, second or even third choice, and to look for properties that fit your initial budget – this could be $200k or $700k it doesn’t matter, as long as you buy with a strategy for growth. While I advise buyers to purchase properties that they can see themselves comfortably living in, your first purchase is rarely your last. If you wish to enter the market and climb it, you may need to forgo some of your ideals about what a property should or shouldn’t have,” says Tidow.
Get serious about saving: Saving a large sum of money to put down a deposit can be overwhelming to any buyer. This is normal but don’t let it deter you from your goal, says Tidow. “Regular saving can make a huge difference. For instance, if you plan to purchase a property valued at $375,000, you may need to save around $500 each week for 24 months in order to have enough savings to pay a 10 per cent deposit plus cover any fees – such as lender mortgage insurance, stamp duty, and legal costs (which can cost $20,000 or more).”
Look beyond your horizons
To successfully find properties in your price range and in high growth areas, you may need to get comfortable searching for properties in areas that you would not usually live in, including properties in other cities and states on the cusp of growth. “I bought my first property in Wattle Grove in Perth in 2012 – a three-bedroom house and land package – for $380,000 and earned around $100,000 in equity in 12 months. I’ve also researched and bought into upcoming areas in Newcastle NSW, and the Sunshine Coast in Queensland. Sometimes you need to venture far from ‘home’ to find the right deal,” says Tidow.
With increasing rezoning and refilling activity also underway along the fringes of capital cities, Tidow suggests that buyers do not to dismiss these areas. “Whether you plan to be an investor or owner-occupier, new developments in outer suburban areas can be very attractive for new buyers, and can also be a great stepping stone to your next property. If you’re looking to buy in and around Sydney, areas to consider are Mt Druitt or Newcastle,” adds Tidow.
Get your loan structure right
Getting your loan structure wrong can seriously hamper your ability to buy your first property – and any future ones. “This is why it is essential to speak to a specialised mortgage broker who understands property investment and who can advise you on the best way to structure a loan that fits your needs and your budget.”
“Remember, banks generally lend between 80-90 per cent of a property’s purchase price to a first time owner or investor, based upon the lender’s valuation of a property before granting a loan. With this in mind, I suggest buyers give themselves a financial buffer – which may require an additional $10,000 in savings or more. Ideally you want to have this buffer sitting there for as long as you have property. You never know when something unexpected may happen. You can place this money in a 100% offset account and reduce your interest paid each month,” says Tidow.
Check your eligibility for first home buyer incentives
First home owner grants vary between states. For instance, in New South Wales and Victoria, you may be eligible for a $10,000 grant if you are buying or building a new home valued at up to $750,000. In Queensland, depending on the date of your contract, you may be able to apply for a $15,000 to $20,000 grant to use towards buying or building a new house or townhouse.
Adds Tidow, “If buying property is a life goal, then make this a priority. Start saving and seek out a financial advisor and property mentor to get you started – it’s ideal to do this while you start saving, even if you don’t plan on entering the market right away.
“If you’re in your late 20’s or 30’s, don’t be embarrassed to share a house or find cheap rental options – maybe even living with family for a short time could be the answer to saving that deposit quicker. At the end of the day, paying large rent for someone else’s mortgage is only going to set you back from potentially paying for your own,” says Tidow.
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