First home buyers guide to buying the right property and building a portfolio
So you are thinking it’s time to fullfil the Australian dream of buying your first property? Well good on you for taking the first step and doing your due diligence research.
With the Queensland Government’s First Home Buyers Grant increased to $20,000 from July 1 this year (for new properties only), interest rates at an all-time low and less competition from foreign buyers, it’s the perfect time to invest in the market.
It is extremely important to buy a property that ‘ticks all of the boxes’ and has the best chance of increasing capital growth (value) – see my other blog on the ‘capital growth check list’. When the value of your first property increases, you can up size to another property, or draw on the equity in your current property to acquire a second property, and so on and so forth. Buying the wrong first property can set your future portfolio back years.
Think like an investor and try not to let your emotions control your decision. Some first home buyers would rather buy a brand new 4 bedroom house in the middle of nowhere, with no chance of capital growth in the horizon than buying a modest 2 bedroom duplex in a blue chip location. This mistake will cost years and not allow you to up size or buy a second property any time soon (if at all!).
I personally made the mistake of buying a larger home in a remote area, while a friend of mine purchased two years later. We both sold our properties just a few weeks apart and here is what happened:
Silly and inexperienced me:
- Purchased my first property for $418,000 in 2009, remote rural location. 3 bedroom home.
- Sold for $470,000 in early 2016.
- Growth of $52,000 over 7 years ($7,429 per year)
My smart friend:
- Purchased her first property for $419,000 in 2011 in a popular coastal fringe suburb. 3 bedroom duplex typically the ‘worst home in the best street’.
- Sold for $580,000 in early 2016
- Growth of $161,000 over 5 years ($32,200 per year!)
Smart and experienced me:
- Purchased a 2 bedroom unit in a blue chip location in 2015 for $620,000
- Estimated current value in 2016 $720,000 – $740,000
- Growth of $100,000 – $120,000 in 11 months
I’ve worked with many millionaires that have created most of their wealth through buying the right properties and then leveraging off those to buy more. They are also careful not to over-extend (meaning not borrowing too much at a time). The smart investors are cautious and tend to prefer to have a property in a better location because it is the land that grows in value, while the dwelling decreases in value.
The minimum deposit that the banks require at the moment is 5% of the property’s value for first home buyers, however if you have a 20% deposit or are able to use your parent’s home as collateral (with your 5% deposit) you will save on paying the mortgage insurance (insurance for the bank encase you can’t make repayments).
Lenders mortgage insurance can be thousands of dollars and will vary from lender to lender. You should also consider the cost of this insurance as well as the comparable interest rates on offer to you. Make sure you get a few comparisons from different lenders or discuss your options with a reputable mortgage broker. The banks aren’t nice and they won’t give you the best rate just because mum and dad have their accounts with them too.
Before you go house-hunting, you should spend a few months (at least) researching the locations you like. Try to narrow down on just a few areas so you become an expert on what things are listed and more importantly, what the properties are selling for (this can also be found on the sold section of realestate.com.au).
While you are doing your research you should get yourself a credit check! A friend and a customer of mine have both been caught out when they’ve applied for finance with their bank and realised they were black listed due to an unsettled debt from a previous relationship that they had no idea about until they required finance. This matter was easily resolved, but can take up to 6 weeks after the debt is cleared.
Once the credit check has been satisfied, request a finance pre-approval with your mortgage broker. It is best to speak with the broker when you start saving so that you know how much you can afford to borrow, then you know how much of a deposit to save.
You will need to save:
- Minimum 5% of the anticipated property’s value
- Legal and search fees usually from $1,000-$2,000 depending on if it is off-the-plan or established
- Government Stamp Duty – you can calculate online how much stamp duty you will be paying based on the property value
When you have found the property you want to buy, make sure you are paying the right price. If you have a friend in real estate, ask them to look up the property on RP data (if it is second hand) and you will see the computerised valuation. If it is an established property, ensure you have a finance clause in the contract. The bank will send their valuer out to see if they think the property is worth what you are offering to pay for it. If it’s not worth it then the bank has the right to reject your finance application and the contract will be cancelled.
If you are buying an off-the-plan property, ask for valuations, obtain your own advice from a local buyer’s agent and also do your own due diligence research on realestate.com.au.
Above all, make sure you align yourself with genuine, honest, reputable and experienced Accountants, Mortgage Brokers and Real Estate agents. It is up to you to always have an objective opinion and research the information you are being supplied.
Some people may do the wrong thing by you and tell you to buy the product that gives them the highest commission, it is up to you to be aware that people like this do exist and don’t fall for these Cowboys!
If you would like to stay up to date with our investment information or come along to one of our seminars, feel free to register your details on our website.
If there are other real estate services you would like to discuss feel free to contact our office.
Please feel free to share this blog to assist any of your friends and family that may be property hunting right now.
All the best and happy house hunting!!
Marketing Projects SEQ Pty Ltd
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