It’s the New Year and for some people, their New Year resolution is to “settle down and buy their first home”.
Blogger: Kevin Lee, founder, Smart Property Adviser
According to The Australian Bureau of Statistics (ABS), first home buyers accounted for almost 19% of all owner occupier housing finance commitments in Australia in 2012.
Much of this increased activity was due to the impending end of government first home incentives last year - everyone who could, brought their purchase forward so they could get their piece of the action. Now is a better time to buy your first property because there’s less competition. After all, you can only buy your first property … once!
Tip – your first property will not be your last, so don’t be so ambitious – you’re not going to live there forever. Smart first timers can soon become property investors if they use some initiative & forward planning. With some diligence in paying down that loan coupled with improving the value of their home, they could be able to use that equity to assist with the purchase of their next property.
Many people reading this blog may be thinking “I just want to get into my own home; that’s hard enough to save for”. However, if you’re smart about it, this first home has the potential to become a valuable asset and in time generate passive income for you and your family.
Here’s the strategy for first home buyers who want their first home to become an investment, thus helping secure their financial future:
1. Have a budget and savings plan
It takes the average couple 4.1 years to save a 20 per cent deposit for their first home, if they save 20 per cent of their joint income. So you need to create the habit of saving; and a savings plan if you want to buy your first home sooner - not later.
The best way to develop a savings plan is to allocate two weeks to keeping a detailed record of what and how you spend. Lay out all your receipts, regular bills & bank statements from those two weeks, grab a coffee from the kitchen and sit down – now let’s sort out your budget.
A budget will show you exactly where your money is going, where it should be going & where you can cut back and save. It will help you to work out what you want, need … and can afford.
Alternatively you can always consult a finance or budget expert to assist you with your budget plan. There are plenty of free resources on-line as well!
2. Avoid other consumer debt
Consumer debt is bad debt. It’s easily explained by this - whatever you purchased that drops in value over time, provides no income and no tax benefits, is bad debt.
In other words avoid buying a new car if your old car still works and gets you from A to B. There’s no prize for keeping up appearances by using bad debt!
3. Have a goal – in writing
You don’t start driving without some idea of where you want to go & how you’re going to get there – that’s why we have street directories & GPS systems. Having clearly identified goals is the single most important step. The second most important step is having the ‘road map’ to help you get there. If you know why you’re saving and what you want to buy, you’ll find it easier to get there.
4. Seek expert and trustworthy advice
The real estate sector attracts it’s fair share of people looking to make their fortune by advising you on how to get rich quick by ‘investing in property’.
Real estate sales people, property crooks, marketers, sharks, spruikers – call them what you will. They generally prosper by targeting people looking for a ‘quick fix’. Let’s be clear about this - quick fixes don’t work; except for the person offering it.
Whether you like it or not, creating real wealth through property takes time. Please accept that, in relation to property there’s simply no magic bullet. You should never outsource certain elements of your education process.
Over the many years I’ve been an investor, as well during my seventeen years in the finance industry - it’s sad to say that the people I’ve seen who did not follow these guidelines were invariably the ones who became victims. To download a free report: The 9 Steps To Choosing A Trusted Property Investment Advisor visit www.smartpropertyadviser.com.au
5. Know your finance options
As a first home buyer you will most likely find the finance area a ‘maze’; a hundred or more lenders and thousands of loan products. Be aware that there is help available, just search the MFAA website for a reliable, reputable broker who can assist you: www.mfaa.com.au
6. Purchase a property below your means
The smart way to buy your first property is to focus on affordability; affordability is one of the most important considerations for property investors. Up there with rental demand and interest rates. Affordable properties are those where 80% of people can afford to rent from you, and where 80% of the population can afford to buy if you ever wanted to sell (which you don’t).
Tip - affordable properties are found in the lower socio-economic areas and they are only dubbed lower socio-economic because they are further away from the city. However, these areas are well serviced, have good public transport, good shopping facilities, other essential services & in many instances great lifestyle benefits as well.
Instead of looking at the facts however, most people let their ego control their decision making and pay too much attention to a suburb’s reputation and what their friends would say. The savvy first home takes their ego out of the decision making and takes notice of the research.
7. Maintain your property
Over time this will involve fixing leaks and toilets or even replacing faulty switches, and all of this will cost you (the owner) money. So the smartest thing you can do is ensure you have some savings that is ready for when these times arrive.
8. Repeat the process
Start saving and repeat steps 2-8 over and over again, ensuring that your budget and savings plan is still effective and watch your portfolio and wealth grow...