First Home Buyer
Setting yourself up for future investment opportunities
Few property investors wake up on a particularly sunny morning, roll over to check their phone and, in perusing their bank account, realise they suddenly have enough money to buy an investment property. Real capital growth and investment doesn’t happen by accident, but by setting yourself up for future investment opportunities. So, what does this involve?
Invest now for future investment opportunities
Housing affordability can be a trigger phrase. There is no doubt that it can be a significant squeeze of your finances just to afford your first home. However, if you want to open yourself up to future investment opportunities it is a good idea to put down more early on. In other words, a larger deposit for your first home may give you the option to refinance to a higher Loan-to-Value-Ratio, enabling you to refinance for your first investment property. For instance, a 20% deposit means you may be able to refinance an 80/100 LVR to a 90/100 LVR, while avoiding having to pay Lenders Mortgage Insurance. For this reason, it is important to follow the next step.
Save on the extras
Don’t overspend on your first home, either on the property price, any remodelling you do or on your fixtures and furniture. Be comforted by the fact that one day you may have these luxuries, but if you want to be a long-term investor, sacrifices need to be made at the start. However, don’t avoid necessary maintenance and avoid future headaches by using a building surveyor to highlight possible problem areas.
Keep your credit card in check
Get to know your credit rating, borrowing capacity and projected equity. Be aware of the risk associated with increasing your credit limit and how this may affect your credit rating and lastly, be sure you pay lines of credit back on time.
Remember that while it is good to have lines of credit available to you when investing, you don’t want to lock up your finances and cash flow by relying too heavily on credit cards.
Invest in yourself
Find steady work that has the potential to grow in unison with increases to interest rates. If you have worked for 10 years, saving up a deposit, and secure a loan while only on a six-month contract for a job, this does not promise that you will be able to repay your mortgage in a year’s time.
Have a plan from the get go, not when you decide to invest. Writing your plans and goals down helps you visualise them, which helps them feel more achievable and concrete.
Focus on writing down short term goals, rather than abstract long-term goals such as “buy an investment property”. For instance, write down savings goals, creating benchmarks to get to by a certain time and list goals that will help you achieve these savings, such as money saved through eliminating certain luxuries in your lifestyle. Once you achieve goals, set new ones. Did you save $3000 in a certain period? Can you beat this the next time and save $4000?
Hit the books!
Research from the get go, ensuring you have a real historical knowledge of the market and that you are financially literate. A 2007 study in The Journal of Monetary Economics found that less than half of Americans had attempted to estimate how much money they would need in retirement, with many adults experiencing shortfalls in their finances. The same goes for investing, you will never just wake up with the money to invest unless you plan for it. Jere Behrman from the Department of Economics and Sociology at the University of Pennsylvania established with his colleagues that “improved financial literacy can make a significant difference for financial behaviour” and that “estimated impacts are substantial enough to imply that investments in financial literacy could have large wealth payoffs.”
Establish an offset account in case of any downturn. There is certainly a fable about a squirrel somewhere out there about this very issue. It might be the squirrel who ate all his nuts and never put any away for winter. If you don’t want to know what happened to that squirrel, do the opposite and keep some cash to fall back on.
Make some friends
Establish connections and business relationships with those you will need when planning and executing your finances, such as an accountant, solicitor, financial advisor and even a buyer’s agent.
Be boring and budget
There is no way around it, you will need to create a budget before you see any investment opportunities along the horizon. From this you will can see whether your lifestyle expenditure exceeds your income growth, pointing out obvious areas in which you can save money.