Generally, purchasing a home to live in and buying an investment property are very different processes. They require different strategies, different loans and different concerns that you need to bear in mind. However, there is one thing that is common to both: if it's your first property purchase, you'll need a deposit. That can be in the form of cash you've saved, or, with a Family Pledge Loan, you can access the equity in your parents or family member's home in lieu of a deposit. We explain this in point 4.
With capital cities average asking prices at all-time highs, this can seem like a daunting task. But there are some simple measures you can take to help you go up a rung on the property ladder, particularly if you're a first time buyer.
If it's your first property purchase, you'll need a deposit.
1. Make use of an investment property
Consider delaying your goal of purchasing your very first home in favour of buying a first time property investment instead. The area you want to live in may simply be out of your price range at the present moment - after all, if you want to live there, so will everybody else.
Rather than saving for years for a large deposit and struggling to meet mortgage repayments thereafter, let tenants and the taxman fund your purchase. If you buy an investment in a more affordable area that's headed for growth, you can continue to live where you like, while letting the value of your rental property rise whilst also benefiting from tax savings. It's simply a matter of adjusting your strategy.
2. Be flexible
The topic of adjusting your strategy is fitting, because being inflexible can make a relatively small barrier insurmountable. This applies whether you're buying an investment or residential property. Rather than exclusively focusing on one area that is particularly unaffordable, broaden your options - remember that there are many different property markets.
For instance, recent property data from CoreLogic RP reveals there are still affordable areas in various capital cities, within 10kms of their CBDs. This is not to say these areas are best-suited for investment, but shows that affordability is out there. If you can adjust where you look and access the right investment finance, you can still make the property purchase you originally planned on. It just may not be exactly as you first envisioned it.
One of the biggest reasons some buyers lack financial momentum is due to the absence of a budget and the inability to engage in delayed gratification. This issue is particularly acute among younger buyers, who tend to want what they want straight away.
At the same time, younger buyers have one of the greatest investment tools in their corner - the years ahead of them. By thinking about their finances in their youth and making use of compound interest, they can be far better placed financially than their parents. Seeing a planner or adviser can help: By receiving a concrete investment plan, you're more likely to be able and willing to sacrifice for long-term gains.
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4. Take out a family pledge loan
What are parents for if not to help their children out? In the context of property buying, most people imagine this means parents having to lend or even gift their kids money for a deposit. But the reality can be much less complicated.
There's every chance that your parents have a substantial amount of equity built up in the house they own. With a family pledge loan, they can provide this equity to make up part of the deposit, saving them from giving cash or committing to any payments. The only thing the parents have to do is foot the risk - but as long as you have the cash flow and financial responsibility to meet repayments, this shouldn't be a problem.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879. Casa Capace Operations Pty Ltd, NDIS provider number 4050038018 trading as Casa Capace.