First homebuyers face plenty of challenges getting into the property market, the first and foremost being affordability. But some first homebuyers have found that investing in property is a viable alternative, as it allows you to take your first step on to the property ladder, while someone else pays your mortgage for you.
According to ABS data released this week, the proportion of mortgages going to first-home buyers in June slipped to just 16% of all loans.
There’s no denying that the number of first homebuyers in the property market is declining, largely as a result of the FHOG grant dropping back down to $7,000 (from $14,000) late last year. Rising interest rates haven’t helped the situation either, with six rate hikes flowing through since October last year.
But these factors haven’t put the brakes on first-timers entering the market entirely. Instead, those facing affordability issues are being forced to look outside of the box for viable alternatives – and investing in property is one such option that seems to be gaining popularity.
It was the large number of tax incentives available to landlords that encouraged would-be first homebuyer Peter to turn his attention towards an investment property, rather than a home to live in.
Peter, 22, had simple motivations for buying property. “I wanted to try and get ahead and the property market seemed like a good option, especially with the fall in the economy and the low interest rates in 2009,” he explains.
Initially, Peter concedes, he didn’t know much about tax and property. But during the course of his research he came across a website, nbetax.com, which explains many of the tax and depreciation benefits of property investing.
“The site provided an estimate on what I could claim and what it could mean to me from a cash flow perspective, which made me realise that an investment property was something I needed to look into,” he says.
Mid-way through 2009, Peter devised a savings plan to help him save. Without the FHOG to rely on – as it’s only available to buyers who wish to live in the property – Peter had to gather enough money to cover the deposit and associated buying costs.
“Like a lot of kids at school, I started out with a Dollarmite account where you would bank a couple of dollars pocket money each week, and it really helped me learn how to save to reach a goal,” he says.
Once his deposit was in order, Peter began researching apartments and townhouses in the Hurstville area of Sydney.
“I looked at houses but decided that a unit wouldn’t tie me down as much – I didn’t want to be leashed to a big mortgage at too young an age, so an apartment seemed like a good compromise,” he says.
“The most important thing for me was to be clear on my limit of $400,000 and not allowing myself to get caught up looking at properties that were well over my budget.”
In February 2010 Peter found a two-bedroom unit at St George, Hurstville that fit the bill: it offered attractive depreciation and tax benefits, and was priced within his target range. His offer of $385,000 was accepted and now he has his foot in the property market.
To those first homebuyers contemplating a switch to investing, Peter says you should go for it – once you’ve done plenty of research, of course.
“Researching into the hidden, additional costs of investing beforehand helped me to plan for what I needed to budget for, and what I could afford,” he says.
To work out a reasonable house-hunting budget and figure out how much you can afford to borrow, visit our range of mortgage and financial calculators here.