How Millennials Can Enter The Property Market
*As written for and published exclusively by The Big Smoke
Both Sam Dastyari's viral property video and the Coalition's moves in the budget are off the mark. However, Millennials can still enter the housing market.
Earlier this week Sam Dastyari published a video on social media titled $1 Million in Sydney to highlight Sydney’s housing prices. The video, like the majority of media attention around the Australian property market, carries the sentiment that getting into the market is almost impossible, using phrases including “just not affordable” and “ridiculously expensive”.
But this certainly doesn’t need to be the case…if a buyer is clever about it.
Buying into the Australian real estate market is definitely still a reality. So instead of questioning if it’s possible, consider how it’s possible.
For example, a client of mine recently bought 350sqm of land north-west Sydney. For this block a 5% deposit was required, totalling $20,000, and following the deposit being paid, there is a one year delayed settlement – meaning they have an entire year to save for the remaining funds to complete it. Then, a four-bedroom single story build costs approximately $240,000, which will require a 10% deposit for a bank construction loan. The stamp duty payable for the land is $15,000, or the first home owners grant is provided for living in it.
This entire process totals $650,000, and research shows that similar properties in this area sell for $780,000, a significantly higher amount than the investment from the day of completion.
Once the build is complete the owner will have the option to live in it, sell it, or rent it for approximately $700 per week, a substantial amount of revenue for someone of any age.
Although the Government Budget last night announced that from July 1, Australians will be able to make extra contributions to their super via salary sacrifice (up to a maximum of $15,000 a year and $30,000 in total), this simply isn’t enough.
Not only should people also be able to tap into a portion of their existing superannuation to begin with, but the cap should be raised to at least $60,000 to cover the deposit, stamp duty, and legal fees for example. This increase would make purchasing a property using that money more achievable.
So, what is my advice for millennials thinking about cracking into the property market?
- Utilise government grants and incentives effectively in order to reduce the amount of capital you are required to outlay. By building a new home, first home buyers can access both the New Home Builders Grant and the First Home Owner Grant, as well as the stamp duty concession for blocks. Stamp duty is waived for new vacant blocks below $350,000 and a concession is given for blocks between $350,000 – $450,000.
- Prospective first home buyers can use their rental payment history as proof of genuine savings. Given they can provide a rental ledger from a licensed rental agent showing they have made rental payments in full and on time, first home buyers can reduce the deposit required to purchase their first home.
- Invest in undervalued, high-growth areas. Maximise your ability to grow your investment portfolio in a timely manner by investing in lower-priced properties in high-growth areas. Conduct research into local government plans, and identify areas for further development. If plans for large supermarket or shopping centre chains are planned, it means research has been conducted prior to construction, classifying the area as having significant potential for growth.
- Don’t be afraid to buy properties with cosmetic imperfections. Smart investors purchase lower-priced properties, then make smart renovations in order to rent the property at a price which enables positive gearing and an equity top-up.
- Maximise your borrowing capacity with the right loan structure. Be sure to use a reputable broker to compare all loan products from a variety of lenders, rather than going to a bank who may only give you one generic option. By doing this, buyers can get the best product most suited to their unique financial situation, with the sharpest interest rate.
- Comprehensively insure yourself. Investment properties must be adequately insured. Anything that involves risk must be insured, no matter how small the chances may seem. If the unlikely does occur, having insurance in place will allow you to continue growing your investment property portfolio.
Here at DDP Property, we are determined to bring our clients affordable and smart investment solutions, no matter what the state of the market. Opportunity always exists, it's just a matter of finding it.
Click here to make an appointment with one of our property strategists.