With property prices skyrocketing in many of the major cities, it is no wonder the younger generation are feeling locked out of the market. Depending on where you live, it might not be possible to purchase a small block around the corner as your first investment, but this doesn’t mean the property ladder is too far out of your reach either.
There is no doubt about it, saving up for a deposit is the most gruelling task of any aspiring property investor. Prices are rising faster than we can save but with careful analysis and a keen eye for a good deal, you can put your money into a property in the right place at the right time. Following the market is one way to end up being left behind, rising values, as attractive as they may appear, is often a clear indication that the market is now being flooded with investors meaning you might be priced out before the keys are handed over. All this against a backdrop of changing rules and regulations to navigate when it comes to borrowing money.
In every capital city there lies an untapped gold mine of affordable property and expanding infrastructure. Not only are these suburbs poised for growth, the low entry costs mean yields are much higher than their inner city counterparts making the prime choices for the first rung on the property ladder. So how can get your first foot on the ladder?
Deposit is everything
As with any investment, the more you put in, the more you can take out. Property is no different, you want to be sure you have your money working for you in the right places and by having a greater number of workers, the greater the rewards. The ultimate goal in property investment is to continue building your portfolio and amassing equity, to capture the most value in each of your property, especially in the beginning, a higher deposit will make this process much simpler. Not only will you be paying less interest on the mortgage, the equity within that first property will make that second purchase a breeze.
If you struggle to save for a deposit, reevaluate your priorities. There have been countless stories of young investors carving out their portfolios with salaries far less than the average individual makes. Sure it is no easy feat, but with a specific goal in mind, it can help you put away the needed funds to make that first purchase. If you are serious about getting started o the property ladder, take note of your current living arrangements, not all of us are able to live with our parents (or would want to!) and this means we need to find cheap accommodation to stash away that little bit extra each month. Remember your end goal and don’t be afraid to be a little bit frugal over the next few months while saving. The reward will certainly make up for it!
The first step up on the property ladder needs to be one that you can reach. You might have your eye on the perfect investment in a high growth suburb but remember, be realistic. Your first investment is not always going to be pretty or in the most desirable suburb. Instead it is going to be affordable, in demand and poised for growth. Units are townhouses make perfect first additions to the portfolio, this is because they are not only affordable, they also provide high yields, making the repayments less painful. Don’t be blinded by affordability however, purchasing out in the country might seem like a reasonable idea, but finding tenants might be a challenge and growth is not exactly going to explode in rural areas anytime soon.
If you are familiar with the concept of compounding interest, this is something you can apply to your property portfolio. While the initial returns might seem like a small blip on the radar, the grand prize of investment is the compounding nature of growth.
Know the Value of Research
You might have your eye on a particular suburb simply because you grew up there or enjoy a holiday there from time to time, but do you know anything about the property market? We all have our favoured suburbs when it comes to house hunting or just looking around the neighbourhood but what our eyes don’t always capture is the value behind the market. This means the cheapest suburb is not always the best to invest in, just the like the most expensive suburb might have you sitting on a property that is just about to bottom out in value. Learning where the market is traveling is the first step to making an educated decision about where to start your investment journey.
This includes ALL aspects of the market. Focusing on nothing but growth might seem like a good place to start but that is no way to predict future results, just like starting out in an area that might not have had any growth for a number of years doesn’t mean it is going to suddenly jump in value as soon as you make your purchase. Property isn’t just a numbers game either; it helps to also look at the demographic, economic and political landscape as well to know what is really going on behind the scenes. For example, there might be an area just outside the city that hasn’t seen any significant growth in a number of years; suddenly the local council announces plans for a new rail link to connect that suburb up to the metropolitan transit system. An infrastructure project such as this could lead to an increase in demand as investors; tenants and homeowners flock to the area to take advantage of the new rail link and newfound potential for the suburb. Know your numbers and learn a bit of backstory before making a move. The assistance of a property research and advisory firm can also prove beneficial.
Create Equity Where You Can
Sometimes a property might not be what it seems. The ultimate goal in building your portfolio is to unlock equity either through growth or creating it yourself. This can be as simple as spotting a bargain such as a distressed sale or foreclosure or even a property in need of a bit of a touch-up. While this is often the realm of more experienced investors, even small works can add value to property and help you on the road to the next addition to your portfolio. An example for myself, after graduation I moved into a small unit with my partner and one of the first things I noticed was the glaring bright red wall in the living room. This wall, an attempt at a feature wall, did no justice for the apartment, instead it stood out like a sore thumb and made the rest of the apartment look dated. After a bit of research I discovered the property manager had to reduce the asking rent to get just about anyone to come have a look. Upon moving out the first thing the new tenants commented was…the wall. The point of the story is, sometimes just a little bit of paintwork can improve the overall aesthetics of the property, making it just the little bit more desirable.
Treat Property Investment as a Business
Sometimes newcomers to the property investment game can be blindsided by the costs involved, the effort put in and what the end goal is meant to be. For the inexperienced, property can sometimes seem like a get rich quick scheme, how many properties you can flip to make the most cash. If your investment vehicle worked this way for a business, you would be heading south pretty fast. The goal is property investment is to build your net worth and be constantly creating equity to move onto the next investment. A positive cash flow is a nice addition to the prize but this isn’t what our overall goal is, not just yet anyway. A business owner never focuses on how much money they make in a short amount of time, they focus on how much value they can create while getting closer to that long term goal. Any surpluses are funnelled back into their investment and this is exactly how property investment should be seen when building your portfolio.
Property investment should not be a vehicle for making money on the side or to fund a particular lifestyle along the way. Creating wealth and net worth will take time and the rewards will come a little later, but the longer you wait and the more you stay focused on building your portfolio, the greater they will be. Remembering most businesses run at a loss their first few years, it is about the investment journey, not the instant results.