But it’s also a very important and highly commendable decision that can help to build your long-term wealth and set you up for the future.
The new measure of wealth
What many people don’t realise is that in Australia, your wealth is no longer dependent on what type of job you have or how much money you make.
Instead, the researchers devised a 5-tier asset-based ranking, with the ‘investor’ tier of Australians at the top, noting also that in Sydney, for example, just under 50% of all apartments are owned by investors.
In the US, researcher Thomas Corley spent five years analysing the habits 233 wealthy individuals – 177 of whom were self-made millionaires. He found that if you were to ‘boil it down,’ the rich became rich through one of four ways.
If you’re looking to buy your first home, or perhaps your first investment property, here are some practical tips to help you on your way.
Embrace possibility thinking
It’s so easy in Sydney, for example, to fall into the trap of saying, “there’s no way I’ll be able to buy a property,” or “no way my kids will be able to afford to buy a property” – people feel there’s no hope and give up before they even begin.
For starters, it’s important to find out where you are at – take a ‘financial stocktake’. You may be surprised by the results.
Secondly, it’s important to have the right mindset. Rather than limiting yourself based on where you are at today, instead, ask yourself: “if I want to buy a nice home in Sydney, what do I need to do to make it happen?”
Then, talk to people in the know, ask people who have bought their first home or multiple properties how they did it – they’ll likely say, “of course you can do it too!”
Develop healthy savings habits
When I first arrived in Australia as a new migrant, I read the book ‘The Richest Man in Babylon’ which taught me that 10% of whatever you earn should be yours to keep – i.e. to save rather than spend.
Remember, it’s not so much about what you earn as much as what you keep; if you earn big bucks, but spend it all every week, then it doesn’t really matter.
People are creative and adaptable; we can make do with less. Start making a habit of putting away at least 10%. In the early days I locked my savings in a term deposit, so it would be hard to access. Once I had built enough, I put it into property. Putting your savings into a structured investment helps as well, because it’s money you can’t touch so easily.
Unlock your earning potential
Saving is great, but you can only save so much, whereas your earning potential is unlimited. If you’re not in a financial position to buy your first property, and feel like your current income isn’t enough, think about how you can make yourself more valuable in the workplace.
People often believe they are paid for their work based on time put in. But the reality is, your income can be determined by the value you add to the business. I genuinely believe people can become 20%, 50% or even 200% more valuable to their employers. Entrepreneurs love to pay more for people who add value to a business.
Consider other options
If your dream house is out of the question, financially-speaking, there are still other options. For example, I had a mentor many years ago who was renting in Double Bay – in Sydney’s eastern suburbs. He was paying a premium to rent a home there, being an exclusive suburb. He told me though, that he wasn’t missing out, because he had many other property investments. This way he could take time to think about where he wanted to settle before jumping in and making a decision.
This approach of being a ‘rent-vestor’ is becoming more and more popular, and it’s easy to see why. Apart from the obvious benefit of being able to buy what you can afford, and live where you want, it also provides great flexibility, especially if you’re still starting out in your career.
For example, as a young professional, you may not yet know where you want to live and settle; renting gives you an opportunity to move around, live close to work as your work changes or lifestyle needs change. Then when you’re ready to settle and likely earning a better income, it can also put you in a better financial position down the road to upgrade.
While some rent-vestors may invest in their own city, others may look interstate for even greater affordability. Melbourne inner-city suburbs are still great value compared to Sydney, for apartments. Brisbane is much more affordable and its market cycle tends to follow Sydney and Melbourne. Then Perth and Adelaide which have their own cycles, and also very affordable.
While I would encourage everyone to buy their first property as soon as possible, it’s important to make sure you are taking the right approach and look to avoid making some of the common mistakes.
Typical mistakes to avoid as a First Home Buyer
Jumping on the bandwagon
I often see people who are in a financial position to buy their first home, but rush in too early because everyone else is doing it. The issue here is once you have the mortgage it can make you feel more restricted. For example, I was chatting with a taxi driver in Melbourne recently. He mentioned he migrated here as a student, studying engineering. He started driving taxis temporarily while he was finding it difficult to get a job in his industry. In the meantime, he bought a house, and because of that pressure he felt tied to driving taxis – eight years later he’s still driving taxis.
When you’re young, career opportunities in new locations, or new business opportunities can come up. If you feel tied to your home, it can mean missed opportunities. A better option may be to rent-vest, so you can feel free to move around. You might miss out on the first-home-buyer government grants, but with tax deductions you may even end up better off. It’s worth talking to an expert to see if you may be better off rent-vesting for a while first before buying your first home.
Looking for the perfect ‘forever’ home
The media often builds up your first home or first property as the ‘biggest investment of your life’. Thinking about it this way can make the decision far too emotional and very difficult.
With your first property you’re likely limited by budget, which means you’re not going to find the perfect property.
Also remember, your first home isn’t likely to be your forever home. Australians tend to change homes every 7-10 years. The key when purchasing your first home is to limit yourself to a few key criteria. For example, when I bought my first home, I had only three criteria: budget, to be clean and neat (not requiring any renovation) and close to my wife’s work (we only had one car).
This made the decision so much easier and faster. Just think about your current needs, not your forever needs.
Waiting for the best deal
If you find a property that fits your criteria, don’t walk away because the vendor isn’t willing to offer you a discount. I’ve seen many people walk away from a great property in a great location because they didn’t think it was the best deal. They ended up paying less maybe, but in an inferior suburb, potentially missing out on the capital growth which would allow them to upgrade to a nicer home, or use the equity to purchase an investment property.
The real value is whatever you’re willing to pay for it.
Pushing past the roadblocks to home ownership
In my experience, there are two key issues that typically stand in the way of people buying their first home or first property.
They’re not even aware that it’s something they should do
They are aware, but they have no plan of how to achieve it
If you look at our Ironfish customers – so many had never invested before working with us. So many had never even thought they could buy their first home or investment property, and certainly never thought they could build a portfolio of 2, 3 or 4+ properties.
If you’re considering buying your first property, congratulations for pushing past the first hurdle! The next step is to build your strategy, and that’s where we are here to help. At Ironfish, we are home owners and investors. We can help build a team around you to make sure you get into your first property and start building your wealth for the future. Just remember you don’t need to do it alone.
Joseph Chou is the CEO and Founder of Ironfish, a national property investment services company. Joseph has presented to thousands with the aim of disrupting and transforming mindsets to support people in achieving their personal, career or financial goals. His personal story of success, ‘from Bicycles to Bentleys,’ continues to inspire many. Joseph shares his personal thoughts and insights each month on the Ironfish blog.
Book your seat at Joseph’s next speaking engagement via our seminars page.