7 things any first home buyer needs to consider.
Looking to buy your first property? Here are some things that any first home buyer needs to consider.
1) Why are you buying this property?
Chances are, if you are a first home buyer and this is your first home – it’s not going to be your dream home.
It is important to identify why you are buying this property. Is it because you want to live in your own home, or is it because you intend to build capital wealth?
Head of Binvested, Nathan Birch, says every property purchase should have a purpose. If you aren’t buying your dream home now, you need to be clear on how the property will help you buy it later on.
A lot of first home buyers stretch themselves to get the best possible property from day one, but this may hurt their chances of getting the house they really want in the future.
For example, you may decide to fork out more for a townhouse when an apartment would have been fine. But, is the townhouse your forever home? And will spending the extra money prevent you from buying your forever home in a few years?
2) Are you buying an investment property or a home to live in?
When Nathan bought his first property at the age of 18, he could have stretched himself to buy a home that wasn’t at all his dream property.
Instead, he decided to buy an investment property that he could afford. He remained a rentvestor until he had about 150 properties in his portfolio.
Now that he has a $50 million property portfolio that brings in $500,000 passive income each year, he can afford to live in his dream house.
You may not need such a large portfolio to live in your dream house, but the principles are the same. If you buy a few affordable investment properties below market value that have a good upside for growth and a neutral cashflow, you may be able to afford a much better home than what you can afford as a first home buyer.
3) What is your budget?
Before any property purchase, it is essential that you identify your budget and assess what you can buy with it.
By doing a cashflow analysis you may see ways you can structure your buying to be better off. Is buying a PPOR going to overburden you? How will mortgage repayments affect your bottom line.
Nathan has always seen investment properties as vehicles for creating wealth. He says you could stretch yourself financially for the next 30 years to buy a Lamborghini, or you could spend the same amount on a whole fleet of cheaper cars. If you sent the cheaper cars out as Ubers, you could earn an income that would eventually pay for the Lamborghini and whatever other luxuries you wanted.
Structuring your budget to make money can be a savvy way to get it working for you, and not the other way around.
4) What is your plan for the property?
It’s good to have a plan for each property you buy. How will it suit your current situation and what will it do for you in the future?
Nathan says the in and out costs of buying a property can really add up, so it is important to make sure it is a good fit for you and your family. Making sound financial decisions at every step of the way will increase your chances at achieving your home ownership or investment goals.
5) How will the property help you in the future?
It is also important to have an idea of how your first property will help you achieve your goals in the future. If you know your family will outgrow it in five years’ time, what purpose will it serve you once this happens?
It may be possible to buy a humble PPOR now that you can keep as an investment property later. Or, it may be a good idea to buy something you can add value to in the future by subdividing, renovating or developing on.
Buying in a good growth area could help you create equity to tap into later. Or, it could enable you to make a tidy profit if you want to sell it and buy something better.
6) Do you have a team of professionals in order?
Buying your first property can be a daunting task. This is why it is important to get a good team of experts on your side.
While family and friends can offer great support through the journey of life, they may not know much about achieving financial freedom through property.
If you really want to get ahead through property, it is a good idea to seek the services of an independent financial planner as well as a property expert and a finance strategist. A good accountant and solicitor are also very important.
Make sure you stay clear of spruikers masquerading as experts. Examine the track record of every expert you want to take on board. How have they helped others in your situation? How well are their clients doing now? Have they achieved the same sorts of goals that you want to achieve?
Even if you only plan on buying one home to live in for the next 30 years, you can cut through all the complications and prevent against making costly mistakes by having the right experts on board.
7) Are you getting the best deal?
Nathan says it is essential to treat property investing as a business.
This means buying based on numbers and logic. It means buying with a strategy and it also means getting the best deal possible.
You may think that buying a PPOR is a different kettle of fish, but Nathan says this is wrong.
“A lot of people add emotions to having their PPOR or their first property,” says Nathan.
“But emotions can get you killed.”
He says you should always try and get the best deal – whether you are a first home buyer or a property investor.
Nathan recommends buying properties below market value with a good upside for growth and a strong cashflow. If you’re a first home buyer and can buy your PPOR by following these same principles, you will increase your chances at buying something even better down the track.
A buyer’s agent who has a proven track record at sourcing competitive deals can be an excellent investment. They can help you get a property in line with your overall strategy for a great price. Buying below market value helps you build equity sooner, which you may then be able to use for another property purchase.
Being a first home buyer and purchasing your first property is not just about finding street appeal and indoor/outdoor flow, it is about knowing your financial situation like the back of your hand. It is about creating a strategy that will help you now and in the future. And, it is about getting the best deal possible before pushing on to the next phase.