By Rich Harvey, CEO & Founder, propertybuyer.com.au
The property market set off at a rapid clip in 2021 and hasn’t eased. It’s had an America’s Cup winning pace – a full mainsail and a driving current are propelling it forward at a rate nobody expected just 18 months ago.
But when it comes to markets like these, the laws of physics also apply. For every action, there’s an equal and opposite reaction. So, while there are winners in this stellar market, there are those left in its wake – and they’re mostly young first-time buyers who can’t get a foot hold.
But have they missed the property boat? Are first timers going to be left behind and watching the real estate ship sail off into the horizon?
Perhaps not. Here’s my take on how those who think they’ve missed this boom can still become a property owner.
Deposit Woes
The real challenge for those wanting to enter the market is simply trying to keep up with the pace of price growth while saving for a deposit.
Imagine putting together a lump sum for your first home. Your best laid plans are often based on markets rising at a moderate rate – maybe three-to-five per cent each year – while you shuffle away enough savings for a 10 to 20 per cent deposit.
Then a year comes along like 2021 where you’re delivered a seemingly fatal blow.
CoreLogic analysis showed property value in Sydney rose 25.9 per cent in the 12 months to 21st November 2021. That $800,000 purchase just a year ago is now worth just over $1 million, and your 20% deposit has gone from $160,000 to $200,00 Where are you supposed to secure that extra $40,000 from?
And it’s not like the growth is stopping, so prices just keep moving further and further away, dragging up that deposit as it goes.
It must be so frustrating. Do you keep struggling, scrimping and saving, or should you give up on the ownership dream altogether, and resign yourself to lifetime of renting?
Well, I can think of a few options that can help you get into that home.
Some Solutions
So, what can you do when your budget is tight AND the market keeps outpacing your savings?
Here are a few strategies. Any, or a mix, of these could be your answer.
Your first move is to find some acceptable compromises. While we’d all love a detached home in Bondi, or a view of the harbour in Balmain, the truth is your first purchase is going to be a steppingstone toward these future aspirations.
It’s far smarter financially to be in the market over the long term than sit on the side lines waiting in vain for prices to fall.
How about first compromising on the property type. Rather than shooting for a detached home, maybe an apartment is your best entry-level option. It could be in your dream location and might prove a stellar long-term move – particularly if you retain it as an investment property.
If you do want a little land, then a duplex unit, triplex unit, townhouse or villa might be a good choice. These deliver a little more space than an apartment and come with some dirt to call your own.
Another compromise is location. Look to move away from the CBD.
My tip would be to select an area with excellent facilities and transport options. These suburbs have a lower buy-in price and, if you acquire the right home to begin with, it could be the foundation of your future real estate dealings. When it comes time to move on, you can keep it as a rental, or sell it and realise the equity to pay for your next home.
In fact, a savvy compromise on both location and property type can see you buy just the right level of home in the ideal location with future value growth potential and strong rental demand.
Another move is to ask your parents for assistance. While some might have the means to lend you money, not all parents are flush with spare cash. As such, they could go guarantor on your loan.
Next, rely on experienced independent experts such as a mortgage broker and financial advisor. Both will give advice on budgeting, loan structures and strategies to help you qualify for more finance. These professionals might even suggest looking at ways to boost your income – through upskilling or side hustles – and moves you can make to reduce your debts. They’ll have handy advice on cutting back the credit cards, and your mortgage broker can secure you the best possible lending product on the market for your circumstances.
Then there’s the option to Rentvest.
Renvesting is where you purchase an investment property within your budget that’s located in an area with excellent growth potential, then choose to rent where you wish to live. This approach means you don’t have to compromise on lifestyle while still having a foot on the property ladder. It’s a clever, flexible way to make sure property prices don’t get away from you.
The Takeaway Advice
This hot market won’t last forever. The cyclical nature of property means price gains will ebb and flow, but the biggest cost is always inaction.
So, my main message is simple – don’t give up!
Property ownership and investment are lifelong pursuits that have the potential to reap huge rewards over the long term. There are solutions to the challenges of keeping up with a fast-moving market. You just need to be strategic.
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