Listener questions – What would you do differently if you could go back in time 25 years, tips for first time buyers (Ep.64)

In this week’s episode of the Property Planner, Buyer and Professor Podcast, the team answer burning questions from our listeners. From mortgage strategy and prepping for decisions for first time buyers, to what would you do if you had a time machine and could go back 25 years and start again. 

We put Dave, Cate and Pete in the hot seat to discuss: 

  1. Top tips for first time buyers entering the marketduring COVID-19. Although we’re currently in a unique time (did someone say pandemic?), there are some fundamentals of property purchasing that always apply, rain hail or shine if you are a first-time buyer. 
  2. What should you focus on if you’re not purchasing your long-term home? Your first purchase can catapult you forward on your wealth creation journey if you get it right. But conversely, it can set your lifestyle and financial goals back if you get it wrong. Each property decision can either help or hinder and should be considered very carefully, but none is more important that your first! 
  3. Getting your mortgage strategy right at the beginning of your journey. In episode 50, Dave, Cate and Pete shared their biggest mistakes and one mistake they all had in common was selling property they could have kept. This is in part due to not understanding mortgage strategy and how it helps you to keep properties during your wealth creation journey. Is your lender or mortgage broker an expert in mortgage strategy? Very few are! 
  4. Have a plan for holding your first purchase. It is unlikely that your first property will be your long-term home, but you will be better off if you can keep it as an investment when your long-term home comes along. 
  5. Rentvesting, a viable option but not everyone’s cup of tea. As a first-time buyer, you often can stretch your budget by purchasing an investment property based on the fact that the projected rent will be added to your income tally. This might allow you to secure a stepping stone home that will meet your requirements for longer, or just purchase a superior quality asset whilst maintaining your lifestyle. Education and understanding your options is the key to successful property decisions.  
  6. Price tag v comparable sales. Adjusting your expectations at the beginning of your search will help you narrow in faster and make any necessary compromises to purchase your property. Make sure you are following the sale prices and not the asking prices! And here’s a little secret, there are always compromises. Shhh! 
  7. If Dave, Cate and Pete and could go back 25 years, what would they do differently? The answer to the first question is they would do many things differently, and yes, they would have a better financial outcome, even if the property market does not perform as strongly as it has over the next 25 years… but it might! 
  8. And would they have a better financial outcome? From buying and holding rather than having less itchy feet, starting earlier, making each property count, to self-education, the advice is varied! 
  9. And of course, our ‘gold nuggets’!

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Show notes

  • Tips for first time buyers entering the market during Covid-19.  
  • The same fundamental principles apply – make a decision that is going to stand the test of time, plan to hold the property for 7 to 10 years. 
  • Make your first property a good quality investment if it’s not going to be a long-term home. Whether your first purchase is an investment or a stepping stone home, it can catapult you towards success, to hinder you in wealth creation.  
  • Get your search parameters right at the start – having a feasible and realistic brief is always the secret. Getting it right at the start so that you are not looking at the wrong properties to begin with and understanding what is affordable in the location that you want to live in. It may mean adjusting your expectations to move further away or compromise on the dwelling.  
  • Get onto a search engine and get onto the sales – look at what things are selling for, rather than the quoted price.  
  • There is a bit of a frenzy out there (except Melbourne), supply is way down – the choices are slim, which is driving up prices. Don’t get caught up in the FOMO, things will settle down and more property will come onto the market and it will be much easier to come into the market. 
  • Consider where you would like your long-term home to be – where do you want to live and raise your kids? Consider whether the purchase should be in an around the location of your long-term home. This ensures your property keeps up with the growth in that location or in a superior location. We have seen this many times, where the first purchase experiences inferior capital growth, and locks you out of that market in the future.  
  • If you bought a 1 bedroom unit in South Yarra and thought you could leapfrog to a house in South Yarra, you could be disappointed. However, if you purchased in an area with a good land to asset ratio, with a good prospect of capital growth, you put yourself in a better position.  
  • If you cannot afford where you would like to live, have you considered rentvesting? It is not for everyone.  
  • History suggests that the Australian property market is growing in value, a lot of the market reductions are actually due to medium to high-density apartments. Most capital cities have had a drop, it’s most likely due to the apartments in the cities. Averages are not a clear picture of what’s happening, the properties in highly sought after suburbs are going up.  
  • Access to finance – be pre-approved and purchase ready, turn-around times with lenders are blowing out. If you can put in an offer that is not subject to finance, that may be the deciding factor to help you win the property.  
  • Mortgage strategy – optimise tax deductions, holding property. One of our core mistakes was that we’ve each sold properties that we otherwise could have held. If you can hold every property you buy you don’t have to buy as many properties. Risk management, repayment strategy, setting up money management system and the grease of the wheels is the offset account. Consider paying interest only or minimum principle and interest, preserving the loan balances and future interest deductions. Less bad debt and more tax deductions when you purchase the future home, keeping you in the best financial position when you purchase the next one.  
  • Question – The scenario 
    • There has been a tear in the space time continuum. 
    • You wake up in June 2020 with the body, nominal wage and savings of your 25 year old self! 
    • But you do not own any property 
    • Luckily you have all the knowledge you gained from the past 25 years 
  • Median prices in Sydney and Melbs went up about 5x over the past 25 years, experts like you probably did even better! 
  • Starting from scratch with your 25 year old body, income and savings but with all your current experience, how confident are you that from 2020 to 2045 you would outperform your 1995-2020 returns? 
  • Better knowledge – even with the potential that properties values will not grow at the same rate, the disparity between property value growth and the cost to hold property will be similar. Proportionately the returns will be similar.  
  • If I had the head on my shoulders that I have now, would I have made better decisions? The answer is without a doubt – the properties I chose, some were lucky, some were huge headaches. The fantastic properties I picked were after I gained some knowledge in the property market. With the knowledge that I’ve got and over a thousand people that I’ve helped.  
  • The past 25 years have seen ups and downs, markets are not linear. Our markets have performed well – household incomes and the rate of growth, the household income has been exciting and there has been an introduction of two incomes to many households and the wage gap has improved for women. Household incomes are stronger, but we don’t have another person to add to the household income. The growth in our ability to continue borrowing and buying won’t be as strong as it was in the last 25 years.  
  • If I could go back to 1995 – knowing what I know now, in particular I would stick to the philosophy of buy and hold. I would buy, fix up and sell, buy and build. Would I make as much money % wise in the next 25 years, the answer would be no. At the moment, interest rates are 0.25% and inflation is negative. Back in the early 1990’s inflation was 7-8% and interest rates 17.5%. How can we expect property to grow in an environment where cash rate is almost 0 and inflation is below 0, where they were quite high in the 1990’s. As time goes on and inflation continues to stay low and interest rates continue to stay low, you can’t expect the same property price growth.  
  • If there would be one key thing you would do differently, with the knowledge that you’ve got now?  
    • Pete – buy and hold. I would make a number of sacrifices, but never sacrifice location.  
    • David – starting as early as possible, buying more and focusing on better investing in myself (self-education) to earn and grow my income further to spend more money on investing.  
    • Cate – my mistake would be picking a location that I was familiar with and carrying stigma, I wanted to be as close to where I knew. I bought in Mordialloc which was as close to where I wanted to get (Brighton). If I took that money, I would have bought a nice double-fronted property in the west and I would have been 5-7 km from the CBD. I would have been sitting on a property with aggressive growth and one that could have been a family home in the future.  

David Johnston- The Property Planner’s Golden nugget:  you’ve got to be in it, to win it. You’ve got to be in the property market to get moving and grow your wealth. Property as the main form of initial investment and then diversify from there. 

Cate Bakos – The Property Buyer’s Golden nugget: send us more questions, this has been really fun to map out a whole episode with a couple of really good concepts, please listeners send them through.  

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