Expert Advice provided by Multifocus
Philippe Brach is CEO of Multifocus Properties and Finance
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
A lot of first time buyers are skipping a first home purchase in favour of an investment property, and it makes sense.
As we move well into the 21st century, there are many property market traditions that are really starting to change.
Many buyers are favouring apartments over houses and smaller properties are becoming increasingly popular compared to their larger counterparts. Convenience, location and affordability are all key drivers of these trends.
An even more interesting trend that I am observing is that a growing number of first time buyers are turning their traditional ‘first home’ purchase firmly on its head.
Aspiring Australian property buyers know what they want and they’ll do what they need to get it. Moreover, from what I’ve seen, they’re not afraid to do things a little bit differently, when it comes to making their first sortie into the property market.
Rather than spending years saving for a deposit for a first home they love, more and more of my clients are making their first steps into the property market with an investment property instead. And when the numbers add up, I cannot help but be inclined to think it makes perfect sense.
There are a number of reasons to invest first and worry about buying a home later. Let’s take a look.
Get in the market now
The most obvious reason for investing first is that it offers you the chance to start building your wealth sooner rather than later. You might not have a deposit big enough for the home of your dreams, but you might very well in a position to purchase something else.
Often, putting off a purchase with a view to saving a bigger deposit can be to the disadvantage of aspiring buyers. This is because price growth will often exceed even the very best saving intentions.
Just look to the latest house price figures. According to RP Data, the combined capital city house price index rose by 11.5 per cent to $550,000 in the 12 months to April 2014. That’s an increase of over $50,000 in one year! A cash sum most would-be home buyers would find impossible to save.
Obviously the property markets have performed particularly strong over the past 12 months, and there will be markets where growth is much softer, but this illustrates the significant price rises aspiring savers can be up against.
With that in mind, getting into the property market sooner offers you the chance to start building wealth now and move yourself closer towards your financial goals.
Live where you want
Secondly, investing first also means you’re more likely to be able to live where you want to live. A key problem for many aspiring buyers is that the location they want to buy a home in is often out of their price range.
This problem is easily solved by continuing to rent in your neighbourhood of choice and investing in a property in a more affordable location, where the buy-in price is lower, and rental returns strong.
Build wealth faster and easier
By taking out a relatively small home loan and selecting a property with strong rental returns, many investors often find that the cost of servicing their first property is minimal, with the rental income covering most, or sometimes all, of the cost of their loan commitments. So it’s almost like you’re going on living as normal, but instead you have your rental income paying off your home loan and building you precious equity – the key to financing future purchases and building wealth.
Bear in mind, you will need to budget for some extra expenses such as maintenance, rates and strata fees, but for most first time investors who are in the position to secure a home loan, these costs are certainly manageable.
Purchasing with an investment mindset from the get-go, rather than buying a property based purely on emotion and sentiment, is also much more likely to set you up for a fruitful wealth creation journey.
When you invest, you invest by numbers, so a well thought out investment property should deliver financial benefits that will accelerate your wealth building process much more effectively than the property you might choose to make your home.
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