Cultivate the right mindset
A lot of young, first time investors don’t think of a property as a long term commitment but a way of getting rich quick. It’s important though to start thinking about the big picture- Are you looking to supplement your income in retirement, improve your cash flow, or are you trying to improve your equity position and perhaps buy more properties? You need to be thinking about your long term financial goals and consider a 10-20 year investment plan.
We also recommend talking to people who have invested at a young age to give you more of an understanding of the financial journey you’re about to undertake as well as any sacrifices you may need to make and the rewards they’ve experienced.
Ensure you have good credit history
While it may be easier on the wallet to pay a bill past the due date, this isn’t going to help you when trying to purchase an investment property. Changes to Australia’s credit standards mean that if you miss a bill payment- even by less than one week- it automatically gets recorded on your credit report. As a result, this may give the impression to lenders that you’re more likely to miss payments in the future.
Understand how tax works
It’s important to seek professional, tailored advice from an accountant that specialises in property tax to ensure that your investment is as profitable as possible. For example, many first time investors may be unaware that travel and accommodation expenses incurred when inspecting or maintaining your rental property are generally tax deductible.
Although saving may seem impossible when you’re young and just starting out, lenders want to see evidence of consistent savings over time. It’s important to get into the habit of saving from a young age by putting aside a percentage of your income each week- and ensure that you stick to this amount no matter what. In order to meet lenders guidelines you’ll generally need to show savings of 5% of your purchase price over a minimum of 3 months.
Know your numbers
If this is your first property purchase, you’ll need to have enough savings to cover the deposit of the house. Even if you’re using current equity to cover this, you’ll still need to have some savings to cover purchasing costs. You will also need to know how much you can borrow and have a good understanding on property purchasing costs such as stamp study, legal fees, loan establishment fees and inspections fees- they can all quickly add up!
Consider getting help from your parents
Many young home buyers are now taking advantage of the parental guarantor system to secure an investment property where the 20% deposit toward the purchase is held against their parents’ home asset. Once your repayments have covered the 20% deposit, the guarantor/your parents can then be released and the loan become solely in your name.
Develop an investment strategy
This is a very important component that young investors often fail to apply. You can’t just purchase an investment property, forget about it and then expect it to work for itself. You need to develop a detailed strategy that includes the type of investment property that you want, how much money you’re willing to spend, what your expectations are and what your net position will be after selecting a property.
Take advantage of property growth cycles
Generally the more time you spend in the property market, the more profitable your investment will become. The benefit of investing at a young age is that you have the luxury of sitting out any market downturns and experience the benefits of numerous growth cycles before it’s your time to cash in.
Owning an investment property can be very financially rewarding. GR Homes have a great range of investment designs with a short build time to ensure your tenant is moving in fast to maximise your return on investment. Take a look at some of our investment designs here.
Want to get started with your new investment?
Fill out the form below to get in touch, and we can help you decide on what you can do dive into the property market.