By Rich Harvey, CEO & Founder, propertybuyer.com.au
There’s been plenty of challenges for first-time buyers in Australian property markets lately. Many have been left contemplating exactly how they’ll be able to purchase a home given prices have rocketed away over the past two years.
Some may also think that the cyclical nature of the market will take care of the situation. They reason that sitting out and waiting for the price pendulum to swing back into the red will be the solution.
While this might seem like a savvy strategy, I believe anyone delaying their buy is making a huge – and potentially costly – mistake.
Here’s why…
Chasing their tail
On the surface, waiting for real estate activity to soften might sound logical.
Property prices across most Australian centers increased substantially throughout 2021. First timers have been competing in a space where there’s little supply, and plenty of demand.
They feel the home they want is beyond reach. Worse still, they believe there’s some risk of paying above the odds, while patience could deliver a discount.
So, I understand the argument, but it really doesn’t hold up to scrutiny.
Perhaps the number one consideration should be that the time spent in limbo is a lost opportunity, and will costing the postponer real dollars.
For example, there’s that never-ending tail chase of putting together a deposit. Most first-time buyers will need a minimum 20 per cent deposit to buy a home. Of course, while you’ve been squirrelling away your savings, building toward that magic number, there’s a problem.
It’s that rising property prices keep making that deposit larger in dollar terms.
A property you had your eye on in 2020 for $650,000 required a $130,000 deposit. By the end of 2021, that same home rose to $800,000 in value, equating to a $160,000 deposit. That’s $30,000 more just to approach the starting line!
This leads to another reason why waiting won’t work.
When you’re out of the market, you forgo some impressive equity gains. In our example above, if you’d found a way to own that home back in 2020, you would have picked up a sizeable $150,000 in equity by 2021. A source of capital ready to be used on your next home or investment.
And while property prices might have already been on a hot trot, don’t be fooled into thinking they’ll go backwards. Value growth may slow this year, but prices will continue rising.
History shows this to be true. There are very few periods in Australia where property values retreated in any substantial way – and if they did it was for a limited time. Even after earth shattering events such as the GFC, relatively small price retractions were followed by a steady upward surge.
How to buy now
I can almost hear your big question – “This is all well and good Rich, but how can I actually find a property and buy now?”
My advice is this…
Number one, lower your expectations. Your first home is not your forever home. Who cares if you need to buy a house that’s a bit smaller and little further from the city? You might actually discover a location with gentrification underway and good transport options. In fact, you just might be on the ground level of a hotspot set for impressive growth. These areas help catapult you up the property ladder – but you must take that initial step first.
Secondly, choose a property that needs a little love. Renovatable homes are, by their nature, a touch cheaper to buy because they require additional capital to be spent on them. Instead of buying a new property, seek something with good bones that a bit of elbow grease could elevate. These homes always make great starters to your investment portfolio too.
Finally, when it comes to finance, it’s time to pull out all stops. Yes, the Bank of Mum and Dad should put up their helping hand if they can. Most parents won’t mind assisting. It’s satisfying and rewarding to be able to help the kids at the start of their home ownership journey.
Also, take advantage of any grants or discounts on offer. Reduced stamp duty, or first homeownership assistance is out there. Check what’s available and jump on it.
Buying your first home is an adventure that you shouldn’t delay. Taking the plunge may seem formidable, but history shows most buyers wish they’d bought sooner and enjoyed the long-term upsides.
The key is making sure the property you choose has the right fundamentals, and to act as soon as your able to make it yours.
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