Then, after a while, you could move into a bigger and better property with the help of equity growth in your entry-level home, any additional savings you managed to accumulate and through increased borrowing power and affordability as your family income improved.
Those were the days!
My wife and I used this strategy we first entered the property market around three decades ago.
It allowed us to upgrade and move into four new family homes, including two overseas purchases.
Although we were fortunate to have had a wide range of suburbs to choose from at the time, we also bought sensibly and kept within our budget.
We only traded-up as our lifestyle and personal needs changed, and as our finances permitted.
Back then we had the confidence that if we worked hard and saved well, we would and could move up the property ladder.
Fast forward to the present day and this situation has been turned on its head.
The reality is that the top-end properties back when we started our property journey are now the equivalent of entry level homes in most metropolitan suburbs across the country.
The idea that you can simply choose the location you want to live in and start at the bottom to get a leg-up onto the property ladder has been blown out of the water for many people, with things like the ever increasing cost of living, a widening deposit gap, skyrocketing property prices and record low levels of wage growth locking many people out of property markets.
So what options do you have if you find yourself priced out of a particular suburb you really want to live in?
In today’s market, I think there are five key strategies you should consider…
1. Rent first, buy later
Although this strategy doesn’t solve your home ownership problem, it does allow you to live in the suburb you want and it’s a great way to really get to know the locale before buying in the area.
If you end up discovering that things aren’t as rosy as you first thought and you want to move, you won’t have the commitment of a home loan or the hassle of a sale to worry about.
On a more positive note, if you do like where you live and the property you live in, you may be able to transform from a tenant to owner if you and the landlord can agree a sales price.
2. Look for a different type of property
Flexibility and compromise are the mantras of today’s property buyers, which is especially the case for first-timers.
If you are set on a certain location, then a smart move would be to focus on the area first and worry about the type of property second.
Sure, we all have a vision of the kind of home we would like – including things such as size, number of bedrooms, off-street parking and so on, but because there’s likely to be strong competition from other like-minded buyers there may also be disappointment, particularly if other buyers are in a stronger financial position than you.
If you consider buying a smaller or different type of property (such as a unit or apartment) instead of a house, you can always trade-up later.
There’s likely to be demand from similarly placed buyers down the track, especially if you buy wisely.
3. Put your renovator’s hat on
Try to identify hidden value in properties that may be priced under the suburb’s median value because they’re run down or in need of modernising and updating.
This approach relies on vision (that is, that you can see a property’s potential), patience (as it may take some time to get it to where you want it to be) and money (because you’re going to have to spend money to improve and add value).
However, providing the property is liveable and you’re happy to put up with a bit of inconvenience, this is a great way to not only get into your chosen suburb but to build valuable equity that can be used to upgrade to a new home later.
A variance to this approach would be to tear down and build a brand new home, although this would have to be carefully costed because it’s likely to be a very expensive option.
4. Look in surrounding suburbs
If you can’t afford to buy in the suburb you want, consider its surrounding suburbs.
Bordering suburbs often experience the ripple effect of price increases, so you could enjoy the benefits of capital growth in a less expensive area.
This could eventually help you fund your move to your desired suburb.
Surrounding suburbs can be considerably cheaper and only a few kilometres away, meaning you could be no more than a 10 to 15 minute car or bus ride from where you want to be, but you’ve saved a lot of money and you’ve bought a home in the meantime.
5. Buy an investment property
If affordability is an issue, buying an investment property and having someone else help you pay off your mortgage could be a clever way to get into your chosen suburb.
You can apply the same principles we discussed in my earlier column How First Home Buyers Can Get into the Property Market to help bridge the affordability and cash flow gap by buying wisely and enjoying the benefits of rental income, capital growth and an increase in equity.
Additionally, if your rental property is located in your desired suburb and it is the type of property you’d like to live in, you can always do the revers of option 1 above and transform yourself from a landlord into an owner-occupier.
Just remember to get independent advice as there’ll be tax issues to consider.
In closing, if you have a strong desire to buy in a particular area but cost is an issue, don’t overcommit and take on more debt than you can reasonably afford.
The last thing you want is to be burdened by financial obligations that make you a slave to your mortgage.
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