The F to K of property success: “First” home buyers and how to get your ducks in a row, how to approach “Goal” setting, “Houses” vs apartments, why mortgage strategy is more important than “Interest” rate, “Just” do it & “Knowledge” and how to acquire it (Ep.130)

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In this week’s episode, Dave, Cate and Pete take you through:

F – First Home Buyers and what do they need to do to be organised. Purchasing your first home can be a daunting task, as you’ve never done it before. Whether you should purchase a home or an investment can be a bigger conundrum as first home buyers are often in an earlier stage of life, where they may not be established or settled yet. The trio discuss arranging and understanding finance, government and parental assistance, what first home buyers often overlook and what can trip up a good strategy.
G – Goal Setting. Taking time out to set goals will help you immensely, not only on your property journey but in your life journey as well. Determining goals will help you gain clarity on your property strategy and selection, whether you want to: retire richer, retire earlier, make a little bit more money right now, or make regular extra money so you can scale back work or give up your day job. The trio discuss how to approach goal setting and some common mistakes to avoid.
H – Houses (not apartments). If capital growth is your aim, buying a property with a good land to asset ratio is essential. The trio discuss what denotes the difference between houses and units, and how the lack of uniformity can cause great confusion. Plus, buyers beware! Houses are not always a superior asset to units. Tune in to find out why.
I – Why mortgage strategy is more important than interest rate. The trio discuss how people can get sucked into focusing on rates, as it’s the easiest aspect of mortgages to understand. There will always be a lower interest rate somewhere in the next week, month or year and you can tie yourself in knots on focusing on the rate. First and foremost, you need to decide on your mortgage strategy. The Property Planner explains how this can make a significant impact to your bottom line at retirement.
J – “Just do it”. What causes analysis paralysis? Inaction can mean that you start your property journey five years later than you could have, making a massive impact to your nest egg due to the power of compound growth. The trio discuss the personality types that are more prone to inaction for fear of making a wrong decision and how to overcome this.
K – Knowledge and where to acquire it. The trio share their gold nuggets on how you can acquire great advice that will help you sleep well knowing that you are on the right path.

Resources

Show notes

F – First Home Buyers and what do they need to do to be organised
Harder stage of buying to be organised, because you haven’t done it before. Often early stage of life, not sure where you’ll live long term or your life partner or kids. There’s more decisions to wade through. Whether you’re buying a home or an investment can be a bigger conundrum.
The bank of mum and dad is bigger than ever before.
Interest you earn on savings is super low, making it harder to save for a deposit.
The ins and outs of mortgages is all new.
Hard to gauge if you’re getting great advice and service or not.
You’re wired to trust your parents and take their advice, but that may not always be good if you’re parents are not well versed in the proeprty market.
Find out how much you can borrow – although income may be strong, it’s the savings that is hard to build up. Whereas upgraders or investors may have some equity to tap into.
You can borrow up to 95%, but then you need to cover the costs and also you want some money in the bank after the purchase settles and furnish your home.
What do first home buyers often overlook
The finance – not just the cost of the value of the property but also government fees and conveyancer costs.
Check out the show notes for the government assistance that is available for first home buyers.
Determine where you want to live – is it your forever home? If it is, then it’s critical to work out where you want to live. If you want to be near the kids primary school, will that suit you for the time after your kids have finished primary school?
What you want to live in – unit or flat, which may last while you’re single? But will that last you in the long-term?
What are the “must haves” and what are the “nice-to-haves” – location, dwelling and land size. It might be nice to be close to the beach, but it’s not critical. Maybe being close to your family is a must have.
What can trip up a good strategy?
They’ve ended up purchasing interstate because it felt affordable to them – maybe in Queensland, gone for a lower value property or a higher yield and then the price growth hasn’t kept pace with Sydney or Melbourne. Then when trying to get back into Melbourne and Sydney, they’ve fallen behind where they want to be.
If they think they have a good idea of where they want to live long-term, not everyone will have this clarity and even then, life throws you curve balls and things change. But if you do have a sense of that, then look to try and get a foothold in that location as early as possible, so you’re keeping pace in the market.
White noise and unsolicited advice – including spruikers flogging products that require a smaller deposit, cash backs and bonuses. Bad advice from people who are not experts.
Not being on the same page as other critical decision makers – guarantors who want to have a say in what you’re doing, or if you have a partner that is not on board.
Trying to find the silver bullet – perfect advice, perfect property, perfect statistics that back up what you think.
Being too broad with your search criteria – suburbs, asset types. You need to narrow down your requirements and strategy.
Pick 5 to 6 suburbs – Adelaide suburbs are quite small compared with Melbourne and Sydney suburbs. Go and see what your money can buy you, even if you’re not interested in the property. On the website, the property will look fantastic, but you need to go there to find out what it’s really like.
What are some of the best ways parents can help first home buyers.
Putting up a property as security and giving them a cash gift.
Ask if your parents want to join the meeting as well. This can often help so that all parties are across it.
G – Goal Setting
Decide what your goals are – Retire richer, retire earlier, make a little bit more money right now, make some regular extra money so you can work part time, or is it to give up your day job.
You may have one or more of those goals, but that will help you determine your strategy and what property you’re going to buy.
Buying a period home in the inner Western suburbs is a great way to help you retire richer, but simply paying off the home loan in 30 years is not going to help you give up your day job.
If you want to give up your day job, you have to renovate on a regular basis or be a developer, which is essentially starting a new day job.
Common mistakes in goal setting
Setting unrealistic goals – eg: retiring in 5 years and not yet owning an investment property. An investment property will get you rich slowly.
Thinking it’s easier than it really is.
Creating a passive income through being handy on the tools – doing a flip or a big development when you have no experience.
How long should people spend on goal setting
You need to take time out and set boundaries. We’re inundated with more information and pings than we’ve ever been. It’s difficult for people in their 20’s and early 30’s who grew up into this. You need to set up boundaries, or you can end up getting interrupted, multi-tasking, doing things poorly and then getting overwhelmed.
H – Houses (not apartments)
Do not buy small dwellings in high rise buildings. Older flats may be ok.
If you’re looking for capital growth, buy something with land.
If you can’t afford a house, look at a town house, they can have a reasonable block of land.
What denotes houses vs units
Penthouse and townhouse are probably units. But ABS, SQM and CoreLogic have a different definition of what a house is vs a unit and what an agent thinks is a house or a unit.
Does detached mean separate?
Standalone, semi-detached and units.
What is a common misconception about houses being a superior asset?
It depends on where it is, how big it is. People may have an idea that it’s always better to buy a house on a bigger block of land vs a unit that is better located closer to the city.
The gap between median values for houses vs units is increasing in almost every capital city.
Supply and demand is often a factor in this equation – take Canberra for example.
Canberra currently has the biggest house and unit price gap of the capital city markets, at 74.8%.
This has increased from around 30% in 2007
Since the onset of the pandemic, the Canberra Home Value Index increased 22.7% across houses, compared with 8.7% across units.
However, the gap in Canberra house and unit values does not stem from recent demand trends alone;
Canberra has seen a very large volume of unit developments over the past decade relative to houses.
For the 10 years to March 2021, there was an average 4,593 units under construction each quarter compared to just 841 houses.
This equates to roughly 5.5 units supplied to the market for each house construction, relative to the national average of 2.0 units for each house over the decade.
This strong uplift in unit supply has left unit price growth relatively subdued.
I – Interest rates (are not everything)
People can get sucked into focusing on this, because it’s the easiest thing to understand.
There is always going to be a lower interest rate somewhere – in one month or one year.
First and foremost, you need to decide your mortgage strategy
This can make $100,000’s difference to your bottom line come retirement.
Your mortgage and banking strategy will have a profound impact on your cash flow and your financial, property and investment opportunities.
If managed well, it can allow acquisition of assets, superior money management and a stable financial situation.
If paid scant attention and you get it wrong, the cost of selling assets, lost tax deductions, an inability to accumulate assets, poor money management, increased interest costs and stress levels can be astronomical.
How often do you want to refinance? You don’t want to tie yourself in knots because you see a lower interest rate a week later.
J – “Just do it”
What causes analysis paralysis – people end up not making a decision, chasing the lowest interest rate or looking at different locations.
The people who are more conservative or real number crunchers will over analyse and not make decisions.
We’ll often find what we’re searching for – if you’re looking for reasons why something is a big risk and not do it, you’ll find it.
Inaction over a lifetime may mean that you started 5 years later than you could have.
If you purchase for $1M at 5% the difference between 25 and 30 years of compound growth is almost $1M
How can buyers overcome this – the data will not give the answer. There is more to property than past performance and projected returns. Property weighting is subjective.
K – Knowledge and how to acquire it
Check out the trios gold nuggets

Gold Nuggets

Peter Koulizos – The Property Professor’s Golden nugget: Pay for knowledge and advice, find a good expert that can explain things in simple terms. You’ll sleep better knowing that you’ve got some good advice.

David Johnston – The Property Planner’s Golden nugget: pay for advice but select your adviser well. Seek the right trusted advisers. With a strategic mortgage broker, understand that there is a value on their service, even if you are not out of pocket. You pay for it through the interest rate and any fees, the brokers get a payment, but it’s just hidden in the product.

Cate Bakos – The Property Buyer’s Golden nugget: talk to someone who’s done it. Don’t establish ideas if you haven’t talked to someone who has an investment portfolio themselves.

Market Updates

Only a few weekends left to capitalise on a pre-Christmas purchase. Auctions have been booked for each weekend all the way up to the 18^th of December and mid-week auctions scheduled as well, as vendors look to sell prior to Christmas. Although some buyers may drop out of the race to purchase due to property search fatigue and holiday planning distraction, while others may suddenly pivot from one property to another. Agents are finding the task of predicting buyer numbers quite challenging at present. Stock on the market will take a seasonal dip in January, meaning that buyers who have missed out will most likely need to wait till February to purchase, amplifying the mad dash to secure a property prior to Christmas.
Interest only loans will get more expensive in the wake of APRA announcements. In the last week, APRA has announced that banks need to hold more in cash reserves for every dollar loaned on an interest only loan. This means that lending interest only loans to consumers will become more expensive for the banks and the cost is expected to be passed on to consumers. APRA’s direction to the banks will come into force from January 2023 and we are likely to see the margin between interest only rates and principal and interest rates increase as that happens. APRA’s requirements were more stringent than expected, perhaps being employed as a tool to take the heat out of the market.
Queensland and regions benefit from population movements. The REA Group has published a report revealing the interstate and intrastate population movements in the 12 months leading up to March 2021. Queensland is the biggest benefactor of this period, with some 30,000 people moving to the sunshine state. Over the same period, Sydney has lost 31,000 and Melbourne 32,000 people, but not all have moved to Queensland. Regional New South Wales saw an increase of 13,000 and regional Victoria a similar increase of 14,000. Considering that the population of both Melbourne and Sydney is over five million, it seems a wonder that a few thousand people can make a big impact. The trio discuss the significance of these population movements and their impact on regional price growth.

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