Buying your first investment property is a life milestone, meaning investing in your 20s may seem far-fetched. However, by breaking down the process, you’ll see that buying your first investment property in your 20s can be a lot more achievable than you may think. When entering the Perth property market, there a number of factors to consider, such as how much money you will need and how you will finance the property. Here are some important factors to consider as a first-time property investor.
What’s your strategy for financing your Perth investment property?
There are a number of ways to finance your first investment property. Two of the most common strategies are rental yield or capital growth; the former is a short-term strategy while the latter is more long-term. An investment property with strong rental yield is one where the rental income exceeds the costs of owning and maintaining the property, meaning it’s positively geared and you’ll end up with cash in hand.
Alternatively, capital growth means gaining yield from your investment property while it appreciates in value over time, this means holding the property in your portfolio for longer to see better returns. While it can be difficult to predict trends in the property market, for capital growth it’s typically better to purchase an investment property in an area with upcoming developments and projects, planned population density increases, and easy (or improving) access to public transport.
As with all decisions related to your investment property, choosing your strategy comes down to your personal circumstances. Opting for the rental yield strategy will mean less upfront costs and a positively geared property will help you deal with expenses, while relying on capital growth is a more stable and long-term approach. Having an investment strategy before purchasing your first investment property is essential for determining how much money you will need.
When will you be purchasing?
It’s beneficial to become familiar with the property market cycle before purchasing your first investment property, as you may be able to capitalise on swings in the market. The whole cycle takes between seven to ten years, and it is popular among buyers to act in the value phase, which marks the beginning of an upward swing in the market.
However, the property market cycle may have less of an impact on you as a buyer than you think. After all, only you can know when the best time for you is to purchase a Perth investment property, as the right time for you is when you find the right property at a time you can afford it. It can also be difficult to identify which stage in the property market cycle your area is in until after the phase has passed.
How big do you want your home deposit to be?
There’s no one size fits all with home deposits. Most experts suggest saving 20% of the price of your property. To put this into perspective, as of April, the median Perth metropolitan house price is currently $549,000 for 2018, meaning a 20% house deposit amounts to upwards of $100,000. Daunting, right? However, it’s possible to enter the market with as little as a 5% home deposit. You must also keep in mind other purchase costs, such as building and pest inspection, conveyancing fees and stamp duty.
What type of loans might you be eligible for?
There are a variety of loans that you may be eligible for as a first-time property investor. For example, in Western Australia, the First Home Owners Grant is currently at $10,000 for eligible first home buyers purchasing a new home valued under $750,000 if south of the 26th parallel, or under one million dollars if north of the 26th parallel.
There are also a variety of investment property loans to choose from your bank, which differ to your standard home loan as they typically have stricter eligibility requirements. They may require you to put down a larger home deposit and have a higher interest rate, but don’t forget you may be eligible to claim the interest on your home loan as a tax-deduction. When taking a loan from your bank, there are a range of options to consider, such as whether you’ll make principal and interest payments or only pay interest.
For more information about our loan options, speak to a finance broker. And once you have an idea of the loans you can apply for, you can start planning how you will continue to pay your mortgage over the coming years.
Expert advice from Rentwest
Entering the Perth property market can be overwhelming, especially in your 20s. However, it’s essential to have an idea of your future financial situation in order to establish a personal budget and a financial plan. After all, a Perth investment property is a huge commitment, so take the time to consider potential lifestyle changes such as promotions, career changes or returning to university and what they could mean for your future income.
Our expert team of property managers at Rentwest can help you with all things related to your first investment property, from the daily running of your property to connecting you with Perth investment property finance specialists such as Custom Financial Solutions. To find out more about Rentwest’s services and property management solutions, feel free to contact us on 08 9314 9888 or send us an email at email@example.com.