It’s not uncommon for a First Home Buyer to have champagne taste only to discover they are on a beer budget.
Big dreams are shut down by the borrowing capacity reality monster and then the following dream-shattering words are uttered…
I think we might wait for a while and
…save a bigger deposit….
…wait for prices to come down….
…see what interest rates do….
…try to earn more money….
that way we can
…get a bigger house….
…get in a better area….
…get on a larger block….
With a better interest rate….
These words, or their many variations, are the single biggest mistake aspiring First Home Buyers make.
The consequences of this could not be any more serious.
If you have the ability to get your First Home and you delay for any reason, there are only two possible outcomes:
- Best case scenario — You will pay more money for a smaller house on a smaller block further away
- Worst case scenario — You will no longer be able to afford to buy a home
Let me tell you why.
Over the past 50 years, there have been 3 very clear trends in real estate:
- Prices go up
- Block sizes go down
- Affordability moves outwards
In other words, you pay more money for a smaller block farther away.
At the moment there are 3 other trends that are making it even harder for First Home Buyers:
- Rents going up by over 10% per annum
- Interest rates are going up
- Inflation is running rampant
This means that it’s costing more to live, it’s harder than ever to save a deposit, and the amount you are able to borrow is going down.
The future for First Home Buyers isn’t looking any better:
- Building approvals are down
- Migration is up
In the future, there will be more people vying for fewer properties in both the rental and purchase markets which will put further pressure on both rents and house prices.
If interest rates go up, the amount you can borrow goes down.
If interest rates go down, property prices go up.
It doesn’t matter what way you look at it, life is not going to get easier for First Home Buyers.
Does this mean owning your dream home is impossible?
No, it doesn’t. However, you are going to need to mix together a dose of reality and long-term thinking and then you will be able to get exactly what you want.
Let me show you how.
The first principle in solving this problem is most people cannot save at the same rate that property goes up in value.
Let’s demonstrate this.
If you buy a house for $700,000 and the average detached dwelling annual growth rate is 7%:
$700,000 + 7% = $749,000
That means your property has gone up in value $49,000 in one year!
Can you save that much in a year?
You’d probably struggle to save that in 5 years, whereas if you had the property for five years, you’d pocket a quarter of a million dollars!
You can then use this equity to fund the purchase of your dream home.
Understanding this principle is what will help you to leapfrog your way into a bigger home, on a bigger block, in the suburb you want.
However, to do it, you have to think long-term.
To get started, I have 4 recommendations:
- Have a long-term goal
- Work out what you can currently afford
- Get a shortlist of affordable suburbs
- Drive the suburbs
Often, clients tell me they won’t like living in a suburb that is in their price range.
The reason I recommend you to drive to the suburb is because you will probably surprise yourself. Most estates are beautiful – with parkland, playgrounds, and shopping all within easy reach.
What you will love is the stability, permanence, pride of ownership, achievement, and sense of community your own home will give you.
Sometimes to get the home you want, you have to be prepared to play the long game.
To find out more visit us at https://firsthomespecialists.com.au/learn/
