How to get into the property market for First Time Buyers
The other thing to remember if this is your first time buying or investing is that you don’t have to do it alone
Based on the most recent Australian Bureau of Statistics (ABS) housing finance figures released for last November, what will not come as a surprise to anyone who has been attending recent property auctions or reading about the clearance rates in the Saturday papers is that November 2013 was another month of solid lending growth with figures showing seasonally adjusted growth of 26% higher than in November 2012. That is the fastest growth in four years, adding to signs of a broad-based recovery in the housing market. What is also amazing is the growth is increasingly being led by investors rather than owner-occupiers. The value of loans to investors was up 35% on the same month in 2012. That is the fastest growth since 2003, and in my home state of NSW the increase was even more dramatic at close to 45%.So what is driving the increases in lending? In one word ‘confidence’ is returning to the property market. With property watching firms like RP Data and Residex predicting that on average prices will rise 3% to 5% in most capital cities over the next twelve months, investors are finally feeling like there is stability in the market place.What this is doing is putting even more pressure on First-home buyers and I would say first time investors who are also affected by the rise in prices as they struggle to bring together enough funds at a faster pace than prices rise.However with interest rates at all-time lows, now is a great time to get started. So if you are new to property here are my top tips to get you going.
Be prepared to target the lower end of the market
No matter how much cash you have, think economics, not emotion. It may not be the house you want to live in or invest in but if the fundamentals of rental return and capital growth are still favourable it can be a great way to get into the real estate market. Also because you are targeting the lower end, you may be able to buy more than one property. This is called diversifying, which simply means you’re not putting all your eggs in one basket. The next important reason is that for quality properties, values tend to rise faster at the low end rather than in the mid and high ranges of real estate. This is because more people can afford to buy at the lower level, so demand is greater. It’s often only after this lower end has started to move and people begin to realise the value of their property has increased that they start to sell to move into a mid-range value property. This is called the upsize effect.
Use maximum LVR
The Loan to Value Ratio is the amount you are borrowing represented as a percentage of the value of the property being used as security for the loan. When you maximise your LVR you are minimising the amount of deposit required of you by the lender. The lower the deposit means you will have spare cash for a buffer against tenant vacancy or for when an unexpected bill arrives. It could also mean the difference between one property or two, which is another way of protecting yourself against tenant vacancy since you should have at least one property rented at a time.
Choose your lender carefully
It is often hard for me to explain to people, but every lender is different. It often comes down to the number of losses a Bank has recently suffered, it could mean that for a particular location, type of borrower or loan, they are not “ in favour” at the moment. Nothing is more annoying than to find the perfect property only to find that your lender of choice doesn’t like it. The other thing to keep in mind is that the ‘Big Four’ are just that. They are the largest and need your business the least and therefore are often the most conservative and less flexible in their lending policies and less competitive than a smaller lender.
Don’t be swayed by emotion.
Falling in love with a house is fine when you’re shopping for your final primary residence. This property though is going to be a stepping stone and emotions could cloud your judgment and cause you to purchase a property just because you like the porch or the garden. To be successful in real estate, you need to look at the potential return on your investment on each property. Remember money is made when you buy not when you sell.
Use filters in your decision-making
Filter 1: Is there any planned Government Spending?
Wherever the Government is spending money, you should think about investing too. Think about infrastructure: motorways, high schools, railway stations, new traffic links, tunnels. The Government has access to extensive data and hopefully is not wasting too much of our money, so where ever it deploys capital, it eventually expects a whole lot of new happy voters. These people drive up demand and prices. You can track Federal Government spending at: www.infrastructure.gov.au.
Filter 2: Private Industry Investment
As my friend says look for the next Coles, Woolworth or Westfield’s. These companies spend millions tracking population trends and just like the Government, where they spend can be a great place to invest. You can also research and follow private industry investments through groups like the local Chambers of Commerce, where new initiatives, ideas and plans for growth are often publicly shared.
Filter 3: Consider the Demographics
Where an area’s population is in growth phase, there’s naturally going to be a demand for real estate. At the moment New South Wales is a classic example of this trend where there continues to be a housing shortage, which leads to huge demand for real estate and the subsequent increase in property prices. Compare that with Tasmania, which was the hot property state to invest in a few years ago because prices were so low. However at the moment the Tasmanian population is in decline, and has been for just over a decade. This has had an effect on the real estate market there – prices are spiralling down because there’s no demand to prop them up. Apply the same principle to towns, and even suburbs. There will be those where the population is stagnant or in decline and others that are growing. Like a Free Property Report click here to see what the property is really worth
Don’t try to do everything and don’t do it all yourself
There are many ways to be successful at investing in real estate. You can buy and hold properties to rent them out. You can buy, renovate and sell. You can buy and add a granny flat to improve your cash flow. However the most common mistake of many people is to not focus on one particular strategy. They end up spending hours of time and effort on a strategy and because no one is ever perfect first time get a modest result, then give up and try another strategy for another modest result. The other thing to remember if this is your first time buying or investing is that you don’t have to do it alone, there are many experts like your lending advisor, accountant or lawyer who can guide you through the process to help you be successful. Why not call for a consultation with our lending strategy experts to find which strategy will best fit your situation on 1300 761 988 or click here to complete our five minute application
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.