Q. I’m renting in Melbourne and have been saving for several years. I’ve got $50,000 in the bank, but when looking at the areas I’d like to live in I don’t think I have enough money to buy something to live in myself. Should I keep saving for my first home, or get into the market with an investment property?
A. I’m pleased to hear that you’ve been diligently saving, and it’s certainly a good way to show prospective lenders that you can service a mortgage.
The Melbourne market has been experiencing strong growth, particularly in the past 12 months, with capital growth at 8.9%. This may make getting a foot in the door harder, but not necessarily impossible.
Before deciding on either option it’s important to do your research. Work out how much properties are selling for and how much you can borrow. First discuss your circumstances with an accountant who can help you crunch the numbers, and then see a mortgage broker. You may be surprised that you can afford more than you think.
If buying your ideal home is still a little out of reach, property investment might just be the next best thing. You can get into property investment on a budget, though when buying make sure you think with your head and not with your heart. Think how it would appeal to potential tenants, what the rental vacancy rates are in the area, average rental return and whether it’s got capital growth potential.
As well as helping you get into the market, an investment property can offer benefits like depreciation and other tax deductions, negative gearing, having a tenant to help pay off the mortgage, as well as potential capital gains if the property increases in value over time.
Remember, you’re still young and the first property you buy now doesn’t have to be your dream home. As time goes by your priorities change, and once you’re in the property market you can move up from there.
Do you have a question for John? Leave it in the comments below and check back each Sunday to see if your question has been answered!
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