The biggest thing holding most people back from investing in property is self-doubt. Sometimes that doubt comes from outside pressures: people who don't believe in your ability to set a goal and meet it. Often, it's simpler than that. We just don't realise what's possible.
That's partly because Australia doesn't have a great track record in teaching young people how to manage their money well.
As Queensland University of Technology Business School accountancy lecturer, Dr Chrisann Lee told the ABC: "Research I've previously done with first-year university students is that they're struggling with money skills, with budgeting, with daily expenses, no savings and they rack up debts from credit cards or school and university loans without really understanding how they will be able to pay it off."
So, the first step on the road to making a wise property investment is to cut yourself a little slack.
"It can feel a little scary," says John Sheehan, General Manager of Invest by Metricon. "Sometimes, when it all feels too hard, you give up. But you don't have to. We can always turn a new page."
How do I turn things around financially?
If you're on a $85,000 salary and don't have a heap saved in the bank, you might assume that scraping together a deposit for an investment property is impossible. But there are lots of little steps you can take along the way to bring your property goals to life.
"There are loads of things we can all do to lower our outgoings and squirrel more into savings," John says. "It all adds up."
Smart tactics to grow that deposit:
- If you can't move in with your parents, consider sharing with flatmates or taking in a lodger. More folks paying the rent or mortgage means more savings in your pocket
- Relocate if you can. Move into a cheaper rental and pop the difference into your savings account
- Keep track. There are easy to use apps out there that tally up where all your money goes. Seeing it in black and white nudges you to make the necessary cuts
- Stop buying new. You probably have a great wardrobe anyway and a pile of books you haven't read. A night in with Netflix costs a fraction of going to the movies.
- Your social life doesn't have to end. Have folks over for home-cooked dinner on a Friday night instead of hitting a swanky restaurant then getting boozy in at a bar
- Divert your pay straight into your savings account. Having to draw out what you need for day-to-day spending makes you think twice about how much you fork out
You can read more top tips on how to save here.
The bigger the deposit you can save, the better when it comes to buying property. Lenders will look at what's called your loan to value ratio (LVR). That's the loan amount divided by the purchase price (or appraised value) of the property. If your LVR is over 80 per cent, you'll have to pay lenders mortgage insurance (often referred to as ‘LMI’). LMI is often factored into the life of your loan, so you may not have to pay it up-front.
There are different ways to succeed
If you're already paying off your mortgage, you may be in a position to consider property investing. That’s because every payment you make builds up what is known as ‘equity’. The more equity you have in your home, generally the stronger your borrowing potential is. You may even be able to unlock that equity to buy your first investment property.
If you don't own, maybe your parents do? They might not be rich, but if they've paid a big chunk (or all) of their mortgage, perhaps they can help you by using some of their equity. You can read more about equity here.
And plenty of people achieve their property investment goals entirely on their own steam. Maybe you want to jump straight to the investment part while renting in an area you love. This is known as rentvesting. You can read more about this clever tactic here.
You may not need to save up as much as you think
If you decide to opt for an investment property as a first step – rather than buy to live – the pathway may be even shorter.
"If you opt for an investment loan over an owner-occupier home loan, you might be able to factor in potential future earnings from a tenant into your loan application," John says. "That could make property investment easier than buying your own home because of that extra earning potential."
It's also worth speaking to your accountant about a little-known tactic called ‘tax variation’. If you usually get a decent lump sum back from the Australian Tax Office (ATO) at the end of the financial year, you might be able to share this across the financial year instead.
You may be eligible to apply to the ATO to cash it in advance by reducing the amount you pay on your salary in what's known as a variation schedule. That could help you make any investment loan payments. You must apply for this annually with the ATO, and if you choose this option, you can't receive a refund from the ATO of more than $500. If you change jobs, you'll also have to apply for a new variation schedule.
You can read more about tax variation here.
Whatever route you take, John says it makes sense to think about your future now. "We can hold your hand and help you develop a new build property solution strategy that works for you."
Make sure you seek financial advice
While we've tried to be as helpful as possible, this article should not be considered professional financial advice. It contains general information only, and you should seek out independent, professional advice on your personal situation before making any financial decisions.
If you feel ready to start your property investment journey, learn more about Invest by Metricon today. Invest by Metricon offers an end-to-end process that allows you to obtain a rent-ready, premium home in one of Australia’s leading estates, simplifying your investment journey. With new build investment opportunities across Victoria and Queensland, you're sure to find something that suits your investment strategy, no matter where you live.
