A look at the opportunity cost of waiting to buy.
Is a Sydney home out of reach for first time buyers? The market may be challenging but the costs of not buying now may be higher than waiting to save more towards your deposit.
As a first home buyer it can sometimes feel like you’re faced with an impossible task. How do you break into the competitive Sydney property market before the neighbourhood you want is out of reach? And how do you do it without overextending yourself financially?
Not buying can actually cost you money
The fact is that every week you don’t buy a home has a real cost. June figures from the ABS show Sydney residential property prices rose 14.4% over the year to March 2017. This increase is rivalled only by Melbourne, where prices rose 13.4%. Meanwhile, Brisbane prices rose just 3.5% and Perth prices were actually down by the same margin.
While some financial forecasters have since started talking about a ‘correction’ to Sydney property prices, the reality is that this change will be gradual and won’t affect many of the city’s more desirable locations across the east and north shore. With Sydney’s median property price now at just over $1 million, even another 10% increase by mid-2018 could end up costing buyers another $100,000, which equates to just under $2000 every week.
Could ‘rentvesting’ be your answer?
The ‘rentvesting’ strategy is steadily gaining traction with savvy first time buyers who want the best of both worlds. These buyers are purchasing investment properties in less expensive areas like Parramatta, the inner west and Sydney’s south, while continuing to rent much closer to the CBD.
This strategy not only allows first time buyers to start paying off their mortgage sooner, it also has potential tax benefits. If the rent you charge is less than the actual cost of owning your investment property after factoring in mortgage repayments and other fees, your property is ‘negatively geared’. This means a much bigger deduction to your tax bill.
Rentvesting also gives you time to use your investment property to build equity (the difference between what your property is worth and how much is left owing on your mortgage). When it comes time to buy your next property, your equity will be a factor that could make a big difference to the amount you can borrow, especially if your investment property has increased in value.
Consider the mortgage insurance factor
Many first time buyers are so focused on building towards a 20% deposit they forget about the option of using Lenders’ Mortgage Insurance (LMI). LMI allows you to borrow up to 95% of the purchase price by paying an extra fee that protects the lender if you default on your repayments.
Adding another cost to an already expensive home loan doesn’t appeal to everyone, but when you consider that you don’t have to pay Lenders Mortgage Insurance upfront, along with the fact that it could help you step onto the property ladder months or even years sooner, LMI becomes a much more compelling option.
Key first home buyer strategies
Along with rentvesting and LMI, keep these key strategies in mind when you start to seriously consider your first property purchase:
Prepare your budget and get home loan pre-approval so you can arrive at auctions and inspections completely prepared.
Find out about stamp duty concessions. NSW has now abolished stamp duty for homes up to $650,000 and offers concessions on homes up to $800,000.
Enlist the help of a buyer’s agent, especially when aiming to buy in a highly competitive area.
The Sydney real estate market is definitely challenging for first home buyers, but getting onto the property ladder isn’t impossible with the right strategies in place.
Call us on 02 9363 3239 for an obligation-free consultation or EMAIL US