You may be young and priced out of the first home buyer's market in your locality, especially if you live in Sydney or Melbourne. Learning how to invest in property elsewhere could be the solution, allowing you to get a foot on the property ladder and work towards owning your own home in the long term.
Many millennials who despair of saving a deposit for a home of their own are turning to 'rentvesting' to secure their financial future. This refers to renting close to work and purchasing an investment property in a more affordable location. There are plenty of regional towns in Australia, for example, that still have affordable homes for sale for under $300,000 and units for under $150,000 and offer good rental returns for savvy young investors. Buying a vacant block of land is another option to consider.
Buying an investment property is very different to buying your own home. Firstly, you are looking for a property with a good rental return that is preferably low-maintenance and has good prospects for capital growth long term – not something that suits your own tastes. That ramshackle cottage may be charming but could need major work and expense you need to avoid. Secondly, investment loans are often available with as little as five per cent deposit and are generally interest-only for the first three to four years, making the initial repayments much lower than a home loan. Choose a property wisely and the rent should cover your repayments.
As you are unlikely to have any large assets for your lender to use as security, you may need a guarantor (such as your parents or another relative) who owns substantial assets in order to get approval for an investment loan.
If you think property investing could be for you, here are some investment tips and the first steps to take:
1. Prepare your finances
Prepare a document outlining your assets (e.g. your income and car) and all your regular expenses and take it along to a mortgage broker or your bank to see if it would be possible for you to qualify for an investment loan and how much you could potentially borrow.
2. Save that deposit
Use an online budget planner to work out where you can make savings, set a budget and stick to it. Work out how long it will take you to save for the deposit on an investment property and look forward to the day when you will reach your target!
3. Do your research
Haunt the internet property sales sites to identify a couple of areas where there are solid properties in your price range that offer good rental returns. Speak to the Century 21 agents in these areas to ask their advice on rental returns and growth prospects in the regions you are researching. Get to know them, visit them in person if possible and they may alert you to suitable properties soon to come on the market that are not yet advertised.
4. Get your loan preapproved
Once you have saved sufficient deposit plus costs for stamp duty and other additional expenses and are ready to make your move, revisit your bank or mortgage broker and get your loan preapproved so you are ready to buy as soon as the right property comes on the market.
5. After purchase
While you are waiting for settlement on your purchase, speak with the local Century 21 property manager to arrange to rent out the property. He or she will carefully vet potential tenants and inspect your property on a regular basis.
Also, visit your accountant so he or she can fill you in on all the tax implications of owning an investment property, including expenses you can claim.
Now you know how to invest in property, you can get started. Investing in property at a young age can become a reality if you are determined and willing to save up for that deposit, do your research and seek plenty of advice. One of your very best sources of advice as a first-time investor is the network of Century 21 real estate agents located around the country. Their wealth of knowledge on their local markets is an invaluable resource for all property investors.