Starting out: Steph Nash

First-timers need not despair: there is a way to get into property

It’s a bit of a weird time for first-home buyers, particularly if you’re looking at getting into the more expensive markets of Sydney and Melbourne. With the future not looking so certain for property values, the big question for firsthome buyers is: do I go owner-occupier or investment?

Investing seems to be a more affordable option for first-home buyers at the moment, as it enables them to purchase cheaper properties that might be far away from where they work and want to live. The big benefit is rental income, which can help pay off the mortgage faster.

All the while you’re renting where you really want to live while still getting your foot in the property market. We call this “rentvesting”, and it can be a really great thing if you don’t have a big enough deposit to buy where you want to live. So how do you do it?

Getting a loan

Organising a loan is the first step in buying a property, and with all the investment lending changes at the moment there’s a bit to think about. Commonwealth Bank recently cut its maximum loan-tovalue ratio to 90% for property investors, meaning that the minimum deposit is now 10%. The CBA minimum used to be 5%, so you now have to save quite a bit more to be able to get a loan.

While some of the lending changes may affect you, Michael Beresford, director of property investment service OpenCorp, says it will ultimately depend on your lender. The only big thing for consideration is an increase in the amount of money you will need to have on hand to compensate for a future interest rate rise.

“Regardless of lending restrictions, what is really important is that all investors, especially first-time investors, leave themselves a buffer,” says Beresford. “This is to ensure they can cover costs if interest rates go up and not have to be coming up with

Investing seems to be a more affordable option for first-home buyers

that increased money out of their pocket month to month.”

Location, location

Once you find out how much you can borrow, you can then determine where you can buy. When looking for an investment property, search for something that’s within your budget, will at least retain its capital value and return a reasonable rent. Better still, the ideal scenario would be for the property to eventually increase in value.

Beresford says that to maximise the profitability of your rental property, you should be looking for areas in high demand, in close proximity to everyday amenities, such as schools, transport and employment hubs. “You want to ensure there’s minimal supply or competing properties trying to attract a tenant in close proximity to your property,” says Beresford. “That will not only attract a better-quality tenant who’s likely to stay long term, reducing your vacancy risk, but also you’re not likely to incur unexpected costs to hold the property.”

Costs for buying an investment property are almost the same as for buying an owner-occupied home. While you have to factor in the usual stamp duty, legal fees and bank fees, you will also have to think about maintenance and possible renovation costs. Remember, keeping your property in good condition is vital for maximising your rental income.

Cash flow risk

In terms of risk, Beresford says investment properties are, in a way, less risky than buying an owner-occupied house, as you’re technically also getting rental income. To help you keep the money coming in, set up a depreciation schedule for tax time, fill out a tax variation form for better cash flow and always think long-term in making decisions.

“Get rich quick means lose money fast, so make sure you’re taking a long-term approach to the investment that you’re purchasing,” says Beresford. “The most important thing to be looking for is the quality of investment which will maximise the chances of the property performing well over time, both from a capital growth perspective and a rental perspective.”