To buy or not to buy? It’s one of the biggest ‘grown-up’ decisions you’ll make. But, when done right, it doesn’t have to tie up all your money. There are a number of ways to invest your funds, but when considering your options, property investment is worth investigating.
One of the biggest benefits is the leverage power you get from using a smaller amount of money to buy a much larger asset through borrowing.
If you buy a good quality property you get compounding returns, which help you build the initial momentum that is so important in the early stages of wealth creation.
There are so many things to consider: When and where to buy? Established area or up-and-coming ‘hotspot’? House or unit? New-build or existing property?
But the two fundamental things that keep young people on the sidelines are: stumping up the initial deposit, and worrying a mortgage will curb their lifestyle. To combat this, there are ways parents can provide financial support through being guarantors. Speak to your broker about how you can structure this.
Once you get past these and come up with a strategy, you’re well on the way to property ownership.
If you’re like most young professionals, you won’t want property ownership to put a dampener on regular holidays, eating out or even joining a local sporting team. Don’t let a home loan hinder your lifestyle too much. Things like offset accounts against a mortgage allow you to still save money for those holidays and offset the interest on your home loan at the same.
Many people make the mistake of diving in with a ‘she’ll be right’ attitude. They’ll do back-of-the-envelope calculations, or sit down with a broker and run some rough numbers, with no real focus on what’s the perfect amount of money to spend. Make sure you speak to a qualified broker who will assist with getting the right home loan to match your realistic lifestyle expectations.
After seeing all the zeros on that initial deposit figure, people will often put property in the too-hard-basket, or at least push it out to the never-never.
Being clear about what your target is, rather than coming up with a ball-park figure, is vital and it’s something that your financial advisor/broker can help you with.
Once people have that focus it’s really easy for them to see what’s required and when that’s possible – that provides a huge psychological boost, so it doesn’t seem too hard and far away.
Get a strategy, get it right
To achieve both your long-term wealth goals and maintain a good lifestyle, you need to come up with a detailed strategy.
In practice, what that often means is modelling financial outcomes under various scenarios and working out what you’re comfortable with. This applies to the deposit-saving phase, and well beyond.
That’s the only way you can get a good quality plan for buying property – to actually lay it all out and say: ‘These are the outcomes we’re likely to expect. Are we happy with the outcomes? Or do we need to change something?’.
If, after you run the numbers, your plan doesn’t stack up, you may need to have a long hard think about whether buying is right for you.
Then if you still want to make property ownership work, you can look at the following variables:
- Borrowing strategy: Loan structure, blended mortgage insurance and guarantor setups may get you into the market sooner. If you can avoid putting all your savings into property your risk exposure may also be reduced.
- Spending and borrowing amounts: Consider investing in an area where property values are less and therefore more in line with the size of deposit you have saved.
- Tax position: Buying as an owner-occupier or an investor can dramatically alter your financial outcomes.
- Cashflow: Having a structured, easy to track, and easy to manage cash flow strategy can make it easier for you to stick with your plan and own sooner.
If you have a good strategy in place, getting into the property market early can put you on the right track to securing long-term wealth.
And by having clear goals and systems in place, you’re less likely to have to sacrifice your lifestyle.
If you would like to discuss with a professional how you can get into the property market – contact a Partners Lending specialist today to arrange your free consultation. Call 03 8508 7800.