With property prices reaching eye-watering highs in many areas, concerns have been raised about the dire situation first time buyers face when they’re ready to buy. But is it really that bad?
Some media reports have hyped the fact that it can take eight years to save for a deposit. Leave it to the general media to see the downside. If I was considering buying my first property now, even I would be discouraged by continually reading these reports.
The reports open up the subtext argument about how hard it is to enter the property market now, as opposed to any time in the past. As someone who has built a property portfolio without the help of parental hand outs, from my perspective it is much easier now. You just need to know how.
I actually did it the hard way (of course). Due to my family situation, I moved out on my own just after I turned 16. My first rental property was a little bed-sitter in a converted house at Summer Hill (NSW). At that time exactly 33% of my money went on rent and the rest went on utilities, general life bills, food, plus nights out. I spent the lot every week because I didn’t know any better and had extremely poor cash control, as well as very little income to manage.
I remember thinking I would never be able to own a home of my own. I eventually took on two extra jobs over the top of my full time day job, and started to build up a little savings nest egg . . then blew a fair whack of it renovating a different (bigger = two bedrooms and a separate kitchen) rental property, buying a second hand car and a holiday.
As a property devotee I was extremely keen on buying my own home, however I just didn’t believe I could ever afford to buy in Sydney. But what I was really thinking was . . “I will never be able to afford to buy a house in Haberfield”. For those of you don’t know, Haberfield has always been one of the more expensive suburbs in Sydney. It’s losing its crown a little now with WestConnex and a range of other issues impacting prices, but back when I was looking Haberfield was only for the well heeled.
Of course, if I had only looked a little closer to home – I was living at Five Dock by this time – and saved just a little more, I would have been able to enter the market years earlier than I eventually did. Back then, there were other obstacles including high unemployment, massive interest rates and single females were not all that successful in obtaining loans, so I had plenty of excuses for not even trying to figure out how to achieve my goal.
What I ended up doing was move to Brisbane (with a few years of a sideline living in Perth and Melbourne – always the long way to the goal . . ugh). Sure, part of my interest in Brisbane was the fact that every single girl in Sydney knew there was a better male / female ratio in any other city other than the one I was living in.
Other personal drivers aside, 50% of my incentive to move to Brisbane was because properties were about 75% cheaper than Sydney prices and I was not getting any younger. It all worked out though, as I finally found my entry into the property market and then kept going.
But there was plenty of other ways to enter the market. Some of my friends married extremely young – for example Buck and Garry – Buck was only 21. They couldn’t afford to buy near their parents – Buck was from Earlwood and Garry’s family was based at Bondi. What they did was buy an unloved little unit at Maroubra, which was considered to be a LONG way from the areas they wanted to live in.
Their property needed considerable work done to it, so they organized a series of working bees to polish it up and then they tricked, bribed and begged for as much help as they could get. Next, they focused and saved, and eventually traded up to their ‘forever home’ in Caringbah. Originally, Caringbah was planned as a stepping stone, but they ended up loving the area and are still there today . . 20+ years on.
Moving around and renovating was a very common theme ‘back then’. People started to move further and further out of their original suburbs, spreading out to the Central Coast, Blue Mountains, Wollongong, or even changing States like me. The aim was to find something that matched your budget and your lifestyle, even if it wasn’t planned to be forever.
And it wasn’t only people from NSW doing this. My husband grew up in Brisbane (yes . .I found him in Brisbane as well as the property I wanted : – )) and he has a similar story in the way he entered the market. He spent many weekends renovating houses with a multitude of friends and family – all with a view to finding a bargain purchase, then fixing it up. His first property was in a new ‘outlying’ suburb – now considered to be an inner suburb – and then he traded up until he could afford to move to his desired suburb.
But that was then. Now first time buyers have many more opportunities to get into the market, including the suggestions below.
- Buy a unit or house that matches your budget . . .and travel a bit longer to work for a few years.
- Buy something and renovate, then either keep it or sell and trade up.
- Buy and rent out a room or two.
- Buy a duplex or a property that already has a garage / granny flat and rent out the extra space.
- Buy and rent out the entire property and continue to rent in the suburb you want to live in.
- If your parents can help – there are special loans that help them provide the deposit using equity not cash. Talk to a good mortgage broker about this.
- Buy with a friend or two, or another family member – one of my clients did this with her first property and her second purchase was a mini-development project which will deliver on a number of levels for her.
- A little extreme – but I did it – move to another State where properties are closer to your budget.
- There’s a limitless amount of other ways to enter the market, and I would love to hear your ideas so please send us your suggestions and I will add them to the list.
The issue getting significant attention at the moment is saving for a deposit. The fact is, you do actually have to work at saving and building up a deposit. But there are ways to do this quicker as well.
- Buy something cheaper and let capital growth and equity build your base for a larger deposit.
- Pay yourself first – an old trick but it works. Allocate 5% (or whatever amount you can manage) of your earnings to a separate account and have the funds transferred automatically. You’ll need a good savings history before most banks will give you a loan, so consider this activity as one with a dual benefit.
- Know your budget – if you haven’t done this already, there’s no time like the present to put your expenses and income into a spreadsheet. Every little bit helps, so it really is worthwhile knowing where your money is going.
- Take on an extra job – not ideal I know – but again I did it and still managed to have a great social life (zero sleep though as I was also completing my first degree, so be careful with this). Many people are starting to think very creatively in relation to earnings including registering their services on sites like Freelancer, Airtasker, or driving for Uber.
- Lower your current expenses – this could mean moving to a budget rental property, bunking in with family, using public transport instead of a car, investigating house-sitting, running around the neighbourhood instead of going to the gym, selling unused items on ebay / gumtree . . .am sure you get where I’m heading.
- Be smart with your bank accounts – consider using a term deposit or shop around for the best interest rate. Every tiny percentage point helps, so make sure you understand what different accounts can deliver but also make sure you know how the interest is calculated and any ancillary costs.
- Get the facts – figure out how much you really need. Use one of the many stamp duty calculators to determine how much stamp duty you will need to pay. But remember you might not have to pay stamp duty if you qualify for one of the government exemptions. Lower deposits may incur costs such as mortgage insurance, but speak to a mortgage broker to get the comparison outcomes so you know what you’re dealing with. Included in the table below are stamp duty fees, but you should also factor in at least $2,000 for conveyancing / legal fees. Depending on what and where you purchase, there may be other fees, however you will have the basics covered by at least understanding your deposit, stamp duty, interest rate / repayments and conveyancing costs.
Two more tips and a word of encouragement
If you’re looking to enter the property market – no matter what your age – I hope you now have a more balanced idea of what might be possible. Two final tips –
- stop reading negative and, sometimes, uninformed stories published by the general media. Look for information that will help, not hinder your goals.
- investigate ways the government can help you enter the market – this doesn’t stop at the First Home Buyers Grant. Instead of joining in on the public bashing of the government for providing incentives for those who are working to build their financial independence, flip your thinking and investigate the numerous ways Federal, State and Local governments can help you.
Finally, believe it is possible and know it is definitely worth the effort to enter the market if you want to. Our property market is one of the more resilient and successful markets in the world, and it will only stay that way if everyone that wants to is able to purchase property that meets their needs. Yes, there is some effort involved, but there’s plenty of people willing to help you make it happen.
About the author
Debra Beck-Mewing is the Editor of the Property Portfolio Magazine and CEO of The Property Frontline. She has more than 20 years’ experience in buying property Australia-wide and has extensive experience in helping buyers use a range of strategies including renovating, granny flats, sub-division and development. Debra is a skilled property strategist, and a master in identifying tailored opportunities, homes and sourcing properties that have multiple uses. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business. As a passionate advocate for increasing transparency in the property and wealth industries, Debra is a popular speaker on these topics. She is also an author, podcast host, and participates on numerous committees including the Property Owners’ Association.
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Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.