Buy while prices are down

If Tom can save a deposit he’ll be able to ...

Q I am 25 years old, live in inner-city Sydney and earn about $100,000 a year.

I have an investment property worth around $300,000 (with a loan of $250,000) in a regional centre. My super is just starting to accumulate and is currently around $25,000. I have around $30,000 in cash (with ING Savings Maximiser) and I am looking for the best investment option for the future.

Should I save up a deposit and buy an inner-city apartment in Sydney now that prices are falling, go for another regional property or pursue an index fund, like one of Vanguard’s, for diversification? I’d like to make the most of my time now to set myself up for the future, as expenses are quite low and I’m saving around $1000 a week. Do you have any recommendations?

At 25 my sole asset was a 10-year-old Datsun 1000, so I am very impressed with your money skills, Tom.

My view, which I discuss a lot with our three adult kids, is that this downturn in prices is a terrific opportunity to buy a property for investment or to live in. Sydney, like Melbourne, will have a population of over 8 million in the next 30 years. Property values are driven by demand, mainly caused by a growing population. So it is hard to imagine that values will not increase over time.

So while I agree that regional centres will also do well, it is hard to go past innercity suburbs, which have plenty to offer, with excellent public transport, cafes, restaurants and entertainment.

Your idea of building a deposit and buying a property during this quite substantial downturn makes a lot of sense to me.