At Rising Tide we’re big advocates for property investment and we often advise people from all walks of life and varying financial positions on how best to navigate the property market.
The so called ‘property bubble’ in Sydney and Melbourne has been getting a lot of attention in the media lately particularly since the Federal Treasure, Joe Hockey suggested people should just “get a good job” if they want to buy property in desirable locations. Hockey’s comments were met with massive criticism, particularly from young people who feel that it’s basically impossible to get in to the market no matter how “good” their job is.
We’ve got good news.
No matter how impossible it may seem, it’s likely that it is possible for you to enter the property market. It’s just a matter of changing your thinking around it.
If you are aiming for a two bedroom terrace in the city and you’re not earning a good wage and have no assets, it’s fair to say that it’s going to be very difficult to go for gold straight away. But that’s not to say it’s never going to happen – it’s all about starting small.
The ‘stepping stone’ method
The most common property investment strategy is the ‘wait and hold’ method. As the name suggests, this essentially involves buying a property, waiting until in appreciates in value, selling it to make a profit and then starting again with a more valuable property (using the money you make from your previous property as a deposit for your new loan).
To begin this process, it’s often worth starting as soon as possible, even if it means buying a property you don’t particularly like in an area you have no desire to live in. The important thing is that you get in to the market in the first place.
Consider the following possible strategy:
- Buy a small place in a non-trendy area that requires a minimal deposit/a deposit you can afford
- Live somewhere else (in an area you want to live in)
- Rent out the place that you own and use the money to partially cover your mortgage repayments
- Enjoy the various tax benefits of owning an investment property and most likely receive a tax refund at the end of the financial year (use this refund to go towards your mortgage repayments)
- Hold the property for a minimum of 5 years then sell for profit and use the money you make to buy a property of a higher value.
- Repeat process accordingly (as many times as you need to) depending on your changing life situation (kids, pets, empty nesters etc.)
Generally speaking, we tend to recommend that clients stretch themselves as much as possible when they’re buying their first property. The reason for this is simple: it costs a lot of money to buy a property (a 500K property will incur around 25K worth of buying costs), so if you’re planning on buying and selling, it can be cost effective to take as many steps out of the process as possible. The higher up you start on the property ladder, the faster you can climb to the top. I.e. if you buy a 700K apartment over a 600K property you’re ultimately going to be able to purchase your million dollar plus home sooner than if you purchased the 600K property. Remember that while the property you own increases in value, the next property you will ultimately purchase is increasing in value too.
The ‘buy and hold’ method
The other strategy we’re fans of here at Rising Tide is the long term holding strategy. That is, buying multiple properties over the course of your life and holding on to them in order to build up a property portfolio.
This strategy is not always possible depending on affordability, but it’s a good one if you can make it happen. This way of investing ultimately means that you will eventually build up an extensive property portfolio that will generate income for you in retirement.
As with all personal finance matters, we really recommend that you talk to your financial planner or reputable mortgage brokers if you are thinking about buying a property. We’ve recently launched our new Property Package here at rising tide that is all about taking the stress and hidden costs out of property investment for our clients.
Email us today to find our more and book an obligation free appointment.