First home equals first investment - September 2019

By Rich Harvey, CEO & Founder, propertybuyer.com.au

Generations of Australians have chased the Great Australian dream, where they work hard and build up a deposit to purchase their very first home.

The traditional approach to home ownership had been to purchase a property that suits your budget, live in it until you’re ready to upgrade, and then sell and move on to something bigger and better.

Seems perfectly logical, but it’s actually a massive lost opportunity.

Savvy property investors know that taking your first step on the real estate ladder can be more than just the idea of having a tradable asset for future home upgrades. It can essentially be the beginning of a journey to building wealth through a property portfolio. These smart investors start small and upgrade when they can, but without selling their original purchase. Instead, they turn that first home into an investment that begins earning an income and growing in value.

Having this strategy in mind when you buy your first home allows you to make a wise investment decision from the outset – but it’s hard to select the best option without guidance.

Laying a portfolio foundation

As a potential first homebuyer, you’ll have spent time thinking about the kind of purchase you can make.

You know your budget. You know what you can afford in repayments. You know the deposit you’ve saved and what it’ll get you. You know the type of home you would like to live in and what you’re willing to sacrifice to get it – and what you’re not.

It feels like a fairly comprehensive list that has you well on your way to finding a great first home.

But pause for a moment to think about what would make that first home an excellent investment property too when it comes time to move on.

You want to find a holding that will have strong tenant appeal, deliver good rental returns and need minimal maintenance.

Location is key

You may have already selected your preferred neighbourhood, but picking spots where there’s potential for long-term value growth and high tenant demand is smart thinking. If the analysis shows your choice of suburb might lack in this department, start expanding your mind on the options.

There are a few fundamentals you might consider when seeking in-demand areas with plenty of tenants.

Universities are a good place to start. They are major drawcards for hordes of people, but with few on-campus residential options. Colleges have limited places and are expensive, so students look for accommodation that’s nearby. This could be in the same suburb as the campus or one of two stops away on a train or on a direct bus route.

Here’s a tip – bring up a map and look for the uni campuses. Then trace backwards from there along the train track to find suburbs that are easily accessible. Look for those that have some form of lifestyle amenity, like cafes, bars and pubs, as well as parks and shopping, as that’s where young people will want to be. Do some research to find out which bus routes service the campus and search the areas they run through as well.

Hospitals are another major renter hub. The hundreds of doctors, nurses and support staff that spend long days working there want to be able to head home without a long commute.

When you’re keen to apply the fundamentals of both rental return and value growth, look at up-and-coming areas on the cusp of gentrification and change. You can profit handsomely by buying ahead of the potential medium to long-term demand. No doubt when it comes time for you to move on, the gentrification process is full throttle and you’ll be sitting pretty in terms of value and rent.

Remember though, a balanced approach to suburb selection is important. Be careful with buying too far out or in isolated areas that present risks in terms of both rental demand and long-term capital growth. But don’t write off suburbs that aren’t inner-city hot spots either. Family friendly pockets that are well serviced by transport and have an abundance of good schools and day care centres are also worth considering. Young families who aren’t in a position to buy will flock to these locations as renters.

Look for quality and durability

The last thing any landlord wants is to be stuck with a troublesome investment property. If you’ve rented in a run-down or poorly cared for home before, you’ll know what that looks like – leaking taps, dodgy power, constantly broken appliances, filthy carpets and old peeling paint. No tenant likes living in these conditions and no landlord enjoys having to constantly pay for a maintenance worker to go around and fix whatever is broken now.

While you can’t avoid normal wear and tear, you can prioritise properties during your search that are likely to give you the least trouble. Those well-built and efficiently designed dwellings should be a top priority.

It’s not just about the cosmetics of the place either – utility plays its part. Look for a home where bedrooms are a decent size and can actually fit a bed for a start! They must have an adequate amount of natural light and not feel like a dungeon. Functional, well laid out kitchen and bathrooms are a must and a nice lounge area and/or outdoor space will attract renters.

You want a property that’s resilient too. No cheap kitchen and bathroom fit-outs that will break beneath regular use. No light coloured, bargain basement carpet that absorbs every stain and can’t be cleaned. No cheap faux wood floors that scratch easily. No DIY paint jobs that don’t last. No imitation tap fittings or appliances that barely see out their short warranties.

In this space, it actually pays to seek good quality to help keep running costs down.

Seek advice

Forward planning your portfolio by selecting a first home that functions both as a home and long-term investment is sensible – but choosing the right asset requires an analytical and experienced approach.

When seeking help to make the best choice in real estate, contact our team at Propertybuyer so we can apply our combined knowledge and extensive networks to help you secure the perfect holding.

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