Interest rates may be low, but most first-home buyers spend years saving for a home. While prices may be rising, that doesn’t mean you can’t get into the property market.
Here are a few alternative options for those looking to start investing in property.
Buying with others
Some lenders, such as the Commonwealth Bank, have loans that are aimed at buyers purchasing a property with family or friends which can make it easier to buy.
“That particular product is quite useful, in that what the Commonwealth Bank does is it splits the debts across two people,” says financial advisor Bruce Brammall.
But Brammall says those interested in this type of loan need to understand they are effectively creating a business partnership which can be risky. For example, the deal could backfire if only one of you wants to sell the property later.
“It is one way into the market, but it opens up a new set of risks for the purchasers which they need to be aware of before they go into that situation.”
Keep in mind that banks have lots of different rule which affect both lending criteria and the terms of a joint loan, so it pays to have a legal professional study the terms first.
Make sure you have an exit strategy and that you have an agreement in place for a change in circumstances before you sign up for a loan of this type, says Propertyology’s Simon Pressley.
“Do the exit strategy test or the divorce test. Treat it like, even though we may be best mates or brother and sister, it needs to be treated like a business venture,” he says.
Family equity loans
Family equity loans are another option which allow parents to act as guarantors on a loan and offer up their own home as security, leaving the principal borrower as the sole name on both the loan and title.
“So for those who do have savings habits, but are still well short of having saved enough deposit – and that’s probably most young people in Sydney at the moment – if they’re not prepared to rentvest or live out of town then the family equity loan is a viable option,” says Pressley.
This type of loan can help first-time buyers avoid lender’s mortgage insurance, Brammall says.
Different property types
Some buyers overlook different property types when searching for that first home, and this is where an off-the-plan purchase can be an alternative.
This means buying the property before it has been built, usually as part of an apartment block or a series of townhouses or units.
There are advantages to this kind of purchase.
“They are a popular way of people buying because in some states, such as Victoria, if you’re buying off-the-plan there are considerable stamp duty concessions,” he says.
But there can also be risks associated with buying this type property, Pressley argues.
“The purchase price isn’t determined by market forces, it’s determined by whatever price tag the developer needs to put on it to pay everyone and make a profit themselves,” Pressley says.
Rentvesting, that is renting where you’d like to live but can’t afford to buy while owning and renting out where you can afford to buy but would rather not live, is an increasingly common way to get into the property market.
“At the moment you’ve got people possibly struggling to afford to buy a home and finding that an investment property is inherently generally cheaper to hold – because of the tax deductions associated with it, the interest is tax deductible and because of the rent you are receiving,” Brammall says.
“Those three things mean that having a $500,000 investment property mortgage is substantially cheaper than having a $500,000 home loan.”
Rural and regional areas can offer more affordable homes and if you pick the right area, the returns for investors can also be promising, says Pressley.
“Rental yields in almost all regional locations are significantly more than capital cities … there are some regions to avoid, don’t get me wrong, but you can say that about capital cities too.”
For those looking to make a sea change or tree change, or live in a commuter town, this is an option but buyers should carefully consider this decision says Brammall.
“It’s about making sure that the property meets your lifestyle requirements. Some people want to live in beachside or bayside suburbs, other people want to live on a couple of acres or out of town a bit,” he says.
Please note that the information in this article isn’t financial advice and does not take into account personal circumstances. You should always consult a qualified financial advisor before making any decisions about your financial future.