Millennials investing in real estate can be a huge dive into a new world where it can be a quite daunting endeavour for young Melbournians to take on. Living in a city with such a temperamental real estate market can come with its fair share of trials, to say the very least.
Alongside this, however, young investors also have an abundance of opportunities to make investment decisions that have the potential to yield a high return, whether it be by flipping houses for profit, placing your property on the rental market, or buying and holding properties, amongst other property investment strategies.
But how do young investors make the most of these opportunities? If you’re wondering how to enter the property market as a young investor, then the 5 steps outlined below will absolutely help you as you navigate the murky waters of first-time property investing.
The first thing you’ll want to do is get to grips with all the preliminary planning you’ll need to do and the measures that you will need to take to qualify for a home loan. This doesn’t just mean learning about locations that are worth investing in, but also engaging with land taxes, land transfer or stamp duty, council rates, rental estimates, what to look for in property inspections, building inspections, body corporate fees, reading Vendor’s Statement or Section 32 contracts, and all the other ins and outs that accompany investing in the real estate market.
For millennials investing in real estate for the first time, in particular, you should also be encouraged to read up on the concessions and exemptions you may be eligible to receive as a first-home buyer. For instance, if you’re buying or building a new property, you may be eligible to receive the First Home Owner Grant. It’s important to note, however, that first-time buyers looking at purchasing existing properties or properties that are valued above $750,000 aren’t eligible to receive the $10,000 grant.
Understanding what concessions you can receive as a first-home buyer can help guide you through your property purchasing process. Staying in the loop with these government concessions and exemptions is highly recommended alongside equipping yourself with a foundational understanding of all the key terms and vocabulary surrounding property investment.
Generally speaking, first-time home buyers are expected to have a 1o-20% deposit for their first property to be eligible for a home loan. Anything under a 20% deposit requires first-home buyers to pay the lender’s mortgage insurance (or LMI), which is an additional upfront payment that varies depending on your home loan to property value ratio (otherwise known as ‘loan to value ratio’ or LVR).
What this means is that if you’re hoping to purchase a property valued at $600,000, you’ll need to save up at least $80,000-$120,000. To have a concrete plan in place for how to go about millennials investing in real estate, you’ll first need to develop a clear understanding of when you’ll be able to reach the savings target which is a ~20% deposit. You may have already made some calculations based on your own salary and regular expenses such as rent, bills, and other estimated monthly costs as they’re presented in your personal budget.
If you haven’t put a personal budget in place as of yet but have still been saving for many years, it’s highly likely that you could be saving at a faster pace with just a little bit of financial planning.
It can oftentimes feel impossible for millennials investing in real estate to enter the property market on their own. After all, this market can feel like a whole new world, especially for long-time renters and younger investors. If you do find yourself feeling a touch overwhelmed, there are thankfully plenty of industry experts and professionals out there to support you throughout your home hunting process.
Mortgage brokers can play a monumental role in taking a lot of the guesswork out of your first home loan application process. With a dedicated mortgage broker in your corner, getting pre-approval for a home loan becomes a virtually effortless endeavour.
Financial advisors may also be able to offer some additional support when it comes to budgeting for your first property investment project. If you’re looking to purchase a property as a single loan applicant, a financial advisor may be able to provide you with additional direction as to how to manage your finances once you’ve signed all the paperwork and now have to navigate monthly mortgage repayments.
As Melbourne property managers ourselves, we’re well-versed in the importance of suburb profiling and location research. Understanding where you’d like to look for property investment opportunities can also help you get a good sense of how much more you’ll need to save in order to secure a property that suits your needs. However, whilst property managers can help you secure a maximum return on your investment through setting rental rates, they won’t be able to provide assistance during your property selection process.
If you’re more concerned about being well-represented at auctions or during negotiations for off-market or private sale opportunities, then a buyer’s agent could be a great asset to your property purchasing process. This is where opportunities in growth suburbs become so important for millennials investing in real estate. As buyer’s agents can provide an abundance of services, including bidding for you at auctions, as well as searching for properties that suit your stipulations and are in ideal growth suburbs or locations.
It’s important to note, however, that the buyer’s agents often work on commissions as well as hourly rates where applicable, so enlisting the help of these professionals generally isn’t as affordable as property management services.
If you don’t have the budget for a buyer’s agent, then your best foot forward is to simply go to as many auctions and open houses as you possibly can. Ideally, every Saturday morning should be spent frequenting open houses in your preferred suburbs and getting a good sense of property prices, both as they’re advertised and once they’re sold.
Going to a lot of auctions is also the best way to prepare yourself emotionally for the auction process. Auction environments are designed to be fairly intense and high-energy, and chances are high that the winning bidders at each and every auction you attend have studied auction environments themselves in order to perfect their ‘poker face’, so to speak. Furthermore, after going to a few auctions and having them under their belt, millennials investing in real estate come out of the process more experienced and know what to expect for their next property opportunity.
The best thing you can do for yourself as a first-home buyer is to attend auctions for houses that are both within and outside of your price range.
Get a sense of when the stakes are actually high because chances are that those feelings of being time-sensitive that you may experience in auction environments that you’re actively bidding in are all entirely orchestrated. Seeing evidence of this, again and again, can help you regain a sense of power and control in auction environments that may mean the difference between losing out and being the winning bidder.
Finally, although it can be tempting to check property listings every day up until you reach your savings goals, it’s important to note that the property purchasing process is a marathon and not a sprint. Even if you are financially ready to buy your first house, this doesn’t necessarily mean that you will be successful at your next auction. You could lose a handful of other auctions before you finally land a good property at a great price.
With this in mind, if you do feel like branching out and investing in shares, stocks, or equity to help bolster your investment portfolio and increase your earning potential prior to buying your first home, then by all means take this step if that’s what you’d like to do! Keep in mind, however, that investing is never a surefire endeavour. That being said, this does ring true for property investment as well.
Entering the property market as a first-time home buyer is by no means an easy task, but it is definitely a step worth taking, especially if you’re young and have a lifetime of high-earning potential ahead of you. With at least one investment property under your belt, you can start building up equity that can then be used to fuel other investments, cultivating your personal wealth.
As there are millennials investing in real estate or if you view yourself as a first home buyer who’s looking to enter the property market for the first time, you may find some great real estate market insights into the Melbourne property investment scene right here on our blog.
Keep up to date with our experts' latest investment strategies and property management tips. If you are looking for any case studies or further information about the greater Melbourne area, speak with our property managers today.
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