How to build your empire?

Getting into that first property.

If you already have your first property, then congratulations! You are past the hardest bit of being a property investor – getting the first property.

There is no point in trying to sugarcoat it! Buying your first property is the hardest part of property investing.

But once you have one, you can just wait for its value to rise and then use the bank’s money to buy the next, and the next, and the next. But there is no avoiding it – you simply have to find the cash to get into that first property. Either borrow it from a family member, or simply save up.

Fortunately, some banks will give you a loan of up to 95% to buy your first property, so all you need to raise is a 5% deposit and the money for stamp duty and other costs. So to buy a modest $400,000 property, you will need a $20,000 deposit plus, depending on the stamp duty for the applicable state, about another $15,000 again. So a total of $35,000.

If you don’t have that much, there is another way. You can ask your parents or a friend or relative to lend you the money.

If they have the cash, you could offer to pay it back in 5 years’ time under the assumption that at that time you would refinance your home to extract the money you owe them. The risk here of course is that you must be confident you are buying in an area where prices are growing. Otherwise, you could end up in a situation where you cannot pay them back.

If you are younger and just starting out, another option may be to ask your parents to raise a small loan against their own property for the amount you require. You can then make the repayments on that loan for them in addition to the loan repayments on the loan for your new property.

In either case, most banks will still want to see some evidence of some of your own genuine savings being contributed to the purchase. Of course, you can also make use of the First Home Owners Grant (FHOG) too if you are eligible. Just keep in mind that you must live in any property that you use the FHOG for, and for a minimum of 6 or 12 months depending on the state or territory you live in.

Also, don’t rule out the option of continuing to rent and buying an investment property as your first property. Many people wait years for the opportunity to use their FHOG but miss out on far more than the value of the grant in the capital growth they could have made if they just purchased an investment property in a high-growth area as soon as they could.

Additionally, it is critical that each property you purchase grows in value in the short term if you wish to leverage off the back of it into your next property. If your first property is purchased for emotional reasons like ‘it’s close to family’, and not investment reasons, you are putting yourself at a big disadvantage. Often it is better to rent where you want to live and invest only where it is booming!

Small steps, big impact. Why anything is better than nothing🤓

The property market has a habit of making the worst and most inexperienced investors look good so long as they hold their properties long enough. It is important to remember that a property purchased today that meets 90% of your criteria, is still better than a property you never get. You have to be in it to win it! If you don’t actually own a property, you have zero chance of making money from real estate.

Remember, good property investors don’t just buy properties, they buy time.

They set themselves up with the right structures so that they never have to sell and can keep the property forever. That way it doesn’t matter what happens to the market in the short term, because in the long term, they are guaranteed to end up in front if they hang in there long enough.

Beware of joint ventures when investing in property!

In property investment, a ‘joint venture’ is usually referred to as a situation where two parties combine to purchase a property. Examples may include a brother and sister, friends, or parents and their children, where all names are on the title and all parties are joint owners. Whilst this may sound very tempting if you are struggling to get into that first property, it should be avoided.

The problem with joint ventures (JVs) is that if you are in a JV with someone, your bank assumes that you owe ALL of the money owing on the property, including all of your partner’s debt and this dramatically reduces your borrowing capacity. To add insult to injury, whilst they assume you owe all of the money, they will still only credit you with your share of the rent received.

The banks’ reason for doing this is that if one of you falls over financially the other will have to pay the bills. So when it comes time to buy your next property no one will lend you any money because you are overcommitted to the first property in the bank’s eyes.

If you are going to go into a JV just to get started, the best thing to do is have an agreement between both parties that at an agreed point where you expect some equity to be available, either one party will buy out the other, or both parties will sell the property. They should never be a long-term thing.

Discover a fresh perspective on property investment with us next time, offering insights that will reshape your understanding of this dynamic market!

~Integrity Team

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