Ask Margaret: How can I get on the property ladder?

Hi Margaret,

My name is John and I am first home buyer living in Sydney's west.

I am very confused about buying property because of high rates. We are newly married young couple and We can't afford $600,000 property but we don't see any good property in our area under this price. I

I am very confused; for some time I have been considering moving to Melbourne - we can buy a new house there for $400,000.

Can you suggest something what should we do? Do you think moving to Melbourne is going to be a good move or not?

Regards,

John

Hi John,

It’s understandable that you feel that prices have risen so much that you are now priced out of the market. 

I’m guessing that, in order for you to live in an area that you see as suitable in terms of its proximity to your work, family and friends, you have to pay $600,000 and so are not willing to consider starting smaller, with say a unit in an area which may require some commute.

At $600,00 plus fees and buying costs, with a 5% deposit, you would be looking at around $690 a week in repayments.

If this is out of your price range and considerably more than you are paying in rent payments, what may be needed is a change of thinking.  While the 'Great Australian Dream' is to own your own home, I feel it is time that young people have a considerable paradigm shift and begin to think differently.

For the older generation, home ownership was crucial as their parents suffered through the unsure times of the Great Depression, where no one could really afford their own homes.  To avoid the same fate, this generation bought their own homes, paid them off over 25 years and then waited for the gold watch upon retirement and lived on the aged pension.

Today we are far more informed and many understand the important need to consider more than just home ownership.  As such, many also invest, in a variety of assets, with residential property being very popular.

What I am now suggesting to you is that, rather than think of property ownership as meaning that you must buy a property in which to live, why not consider the more achievable prospect of jumping on the property ladder by becoming a landlord? 

There are many benefits to this, including:

• You are free to buy property anywhere in Australia, and can access some great, affordable markets where property is still under $300,000.  These markets have great growth drivers and will appreciate over time, adding to your net worth and, in a sense, boosting your savings through equity growth;
  
  
• Many of these markets have high rental yields – often over 6%, and with rates so low, the rent, plus your tax breaks, is highly likely to cover all costs and loan interest payments;
  
  
• You can buy as many investment properties as you like and, as long as you do not live in them, still have access to any future government First Home Owner’s Grant (at the time of writing), and
  
  
• You can rent where you want to live – and in a market like Sydney, where rental yields are relatively low, renting can often be almost half the cost of making a mortgage repayment.

There is little to criticise about this strategy, which is one which allows you to stay living where your family and work are, but still create wealth with property by buying elsewhere. 

To get started, you must learn more about how to buy well, by completing a good course (offered by someone who doesn’t have the agenda to also sell property to you) and read as much as you can to ensure you know how to chase down those strong yield, good growth, affordable markets!

Have a property question?  Ask Margaret!