Six ways to enter the property market

If you have ambitions to build a property portfolio and retire by 30, or simply want to own your forever home, there are a few different potential strategies that could help you take that first step onto Australia’s property ladder.

Start your search regional or interstate

Can’t afford the property prices where you’re currently living? Investing in affordable interstate and/or regional property could be an option to consider.

Just keep in mind that different areas may have different rules for stamp duty and other property regulations, which could cost you more than you expect. Local experts, such as mortgage brokers, real estate agents, buyers agents and more may be able to help you benefit from their local knowledge, though there may be fees to consider.

It's also worth noting that if you’re buying as an owner-occupier rather than an investor, pulling up stakes and moving to a whole new region can mean losing access to your already established support network of jobs, family, friends etc. 

Rentvesting in a starter apartment

Rentvesting is where you buy a property in an area you can afford while you rent a home in an area where you want to live. Ideally, the rental income from the investment property can help cover your mortgage payments, allowing you to use more of the income from your job elsewhere in your household budget.

In time, if your investment property grows in value, you may be able to sell it and trade up to buy a property where you want to live. Alternatively, you could use the equity you’ve built up through principal and interest repayments plus capital growth to refinance the loan onto a cheaper rate, further improving your cash flow, or securing a loan on your next investment property, to start building your portfolio.     

Many rentvestors choose to start with a basic apartment, as these properties tend to be affordable, in high supply, and often in high demand for tenants. Just keep in mind that some lenders may not provide mortgages for studio apartments and other small units, as they may not hold enough value to guarantee the loan.

Getting help from the government

The state/territory and federal governments offer a variety of grants, incentives, discounts and concessions specifically to help Australians become property owners. While many of these programs focus on first home buyers, there may be options available for other Australians as well.  

Some of these options include:

• First Home Owner Grants (FHOGs)
• First Home Loan Deposit Scheme (FHLDS)
• New Home Guarantee
• Family Home Guarantee
• Regional Home Guarantee
• Waived or discounted stamp duty
• First Home Super Saver (FHSS) scheme

Get help from your family

It’s not an option that’s available to everybody, but your parents (and in some cases siblings, grandparents, aunts/uncles or cousins) may be able to provide valuable support when you’re applying for a home loan.

One of the simplest ways your family could support you is by gifting you the money for your home loan deposit. You’ll likely need to supply paperwork confirming that your parents don’t expect this money to be repaid, plus you may need to hold the money in your savings account for at least three months for it to count as “genuine savings.”

Your family may also be able to guarantee your home loan using the equity in their own property. This could allow you to apply for a home loan with a low deposit or even no deposit, and still pay no Lender’s Mortgage Insurance (LMI). Of course, this means your parents will be taking on the responsibility for your mortgage if you’re unable to make your repayments, so it’s important to make sure everybody is aware of the potential risks involved. 

Renovating a fixer-upper or building from scratch

If you can’t yet afford the home of your dreams, you could look into building it yourself, or purchasing part of an upcoming development.

You may find that an older or even dilapidated property may sell for less than a fully renovated property in the same area. If you have the time, the tools and talent, you may be able to fix up a fixer-upper to serve as a home or an investment. Just remember that renovation budgets often have a way of growing larger than you expect. Also, some lenders may not offer mortgages to buy dilapidated properties, as they may not be confident that these properties will retain enough value to secure a loan. 

Buying a plot of land and building your home from scratch could be an option to consider, though you’ll still need somewhere to live while the project takes place. This may require a specialist construction loan, where you draw down the money you borrow in stages as each phase of the construction project is completed.

You could also consider buying a property off the plan, such as a unit in a new apartment tower, or a house or townhouse in a new housing estate. This can often be cheaper than buying an established property, and you may be able to have a say in the development as the project progresses. But remember that you won’t own the property completely until the project is complete and you’ve successfully applied for a mortgage on the property. The developer could also choose to make changes to the project as it progresses, or cancel it altogether.

Renting to own

Do you wish you could somehow turn your rental payments into mortgage payments? It may be possible, though it comes with its own share of risks.

There are a few organisations around Australia that offer rent to own arrangements for prospective home buyers. In these arrangements, you select a property you want to live in and one day own, which the business then buys, and you move in and start paying rent. You’ll have the option to one day purchase the property from the business, using part of your rent payments that have been set aside, plus a mortgage you apply for separately.

While renting to own can help eliminate the need for saving sizable deposits, there are other risks involved, such as the property’s value not growing in the way you expect, and potentially still not being able to afford a home loan by the time your chance to exercise your option rolls around.

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