News.com.au, 28th November 2012.
NO spare cash, no chance of getting a home loan? You can still be climbing the property ladder within a few years. Property Professor, Peter Koulizos, tells how.
Q. I’m looking to make some investment choices over the coming years. I’m under 30 and only earning $40,000 a year and want to know how I can get my foot on the property ladder.
A. You should start looking to buy property as early as possible but you will need to organise some money matters before you can actually start buying.
Firstly, you will need to start saving for a deposit. I know it’s hard trying to save when your income is fairly low. If possible live with your parents so as to keep your expenses down, don’t buy a new car and forget the overseas holiday for a few years, you should be able to save $350 per week. This will add up to just over $18,200 in one year. Surprisingly, this $18,200 deposit goes a long way towards setting yourself up for your first property purchase. Let me give you an example.
Many lenders will lend up to 95 per cent of the value of the property. If you were looking to buy a $350,000 investment property, you would need a $17,500 deposit. However, on top of this, you will need to pay the property acquisition costs of around 5% of the purchase price, which equates to an additional $17,000. In all, you will need approximately $34,500 to purchase the $350,000 property.
After one year, you only have $18,200 but you need $34,500. What do you do? There are a number of options.
Firstly, check out all the government grants and concession that are available. Most state and federal government grants are for those who wish to buy a new home to live in but some states also offer grants to purchasers of established property and investors. You might find that with these grants and stamp duty concessions that are available in some states, you won’t need to save any more money if you want to buy a home to live in. If you want to buy an investment property, you will probably need some more money.
If the grants or concessions aren’t enough, you could go halves with a friend or a relative. One benefit of this strategy is that you will only have to make half of the mortgage repayments compared to if you bought it outright. You will only own 50% of the property but 50 per cent of something is better than 100 per cent of nothing.
Alternatively, you could save for two years and buy it on your own. You won’t have to share the capital gain profit with anyone but you will have to make interest only repayments on your mortgage which equate to approximately $360 per week. (An interest-only loan in the first few years will help with your cash flow).
Finally, you might like to borrow some money from your parents or ask them to go guarantors.
Happy House Hunting!
Written by Peter Koulizos, university lecturer, author and buyers advocate.