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Stepping yourself onto the property ladder - difficult but doable
1. Have realistic expectations
Instead of staying on the rental roundabout and thinking you'll never be able to get into the property market, now could be the right time to seize the opportunities that exist within your price range and consider doing what some might be a dirty word to some - compromise.
First time buyers often start with a wish list that may not be realistic given their resources. It's likely you're going to need to make some trade offs between location, size and features.
First, assess your lifestyle. If you are single, enjoy walking to Gloria Jeans for a latte and hate cutting grass, then a detached home in the suburbs is likely not for you. (More from Michael Yardney: Invest Like Warren Buffett)
Make a list of the things you want. Do you need a two car garage? Space for a home office? Are you going to have children? Is it a good location? Don't look at the property in isolation. Make sure the neighborhood, schools and surrounding amenities and services fits your needs.
You may not have sufficient funds to buy the home of your dreams, but it's getting your foot in the door that counts. Perhaps you could consider trading a back yard for a balcony and buying an apartment or you could buy a few suburbs over from your ideal location.
Then once you are in your first home you can sit tight, wait for values to start rising again (as they always do) and after a while use your growing equity to take the next step on the property ladder into something bigger and better. Remember – from little things, big things grow! (More from Michael Yardney: Where Are Property Prices Heading?)
2. Location is key
Having suggested the idea of compromise for those wanting to get onto the property ladder, I'm now going to suggest something that might seem like a contradiction. Never go for size over suburb.
What do I mean by this?
Well… whilst there are many things you should be prepared to forego in order to buy your first home, like a shiny new kitchen and bathroom or the latest home theatre system, buying in a cheaper suburb just so you can have some extra luxuries or mod cons is not necessarily a good idea.
You see, it's relatively easy to make a few changes to improve an older style home, but it's not so easy to make a tired suburb more appealing to potential buyers. Essentially, it's all about location and although most people don't see their first home purchase as an investment, it ultimately is.
Wouldn't you rather have a property that will grow steadily in value over the years because it's in a good location rather than one that underperforms? Just think how hard you worked to get there in the first place! (More from Yahoo!7 Finance: Australia's 40 Hottest Suburbs Under 400k)
3. Take the first step
Although your first home purchase is based more on emotion than financial logic, you should still consider the property you buy to be an investment for the future. This will be the biggest acquisition you're likely to have made, so ensuring you end up with an appreciating asset that you can leverage off to generate more income (or your dream home) down the track is the best approach.
4. Save, save, save!
Take the time to get all of your financial ducks in a neat little row, as property prices are unlikely to run away from you over the next few years.
I expect the slowdown we're now witnessing in the property markets to last for at least another 12 to 18 months; so now while you have a bit of breathing space is a great time to get organised with a budget and start saving a healthy deposit. (More from Yahoo!7 Finance: Australia's Hottest Suburbs Under 500k)
Ideally, you'll come up with a 20% deposit, plus an extra 5% or so for purchasing costs. However if that's too much of stretch, aim for at least 10% as there's always the option of getting lender's mortgage insurance.
At the end of the day, the most important consideration is whether you will be able to afford your mortgage repayments each month. Never over-commit financially and if this means waiting a little longer, then so be it.
5. Bring forward your inheritance.
More and more parents are helping their kids get onto the property ladder these days. Whether it be your parents agreeing to go guarantor for your mortgage or buying as a joint investment arrangement, asking mum and dad to lend a hand could be a good option. (More from Yahoo!7 Finance: Inside The World's First Billion-Dollar Home)
If they can manage to donate enough to your cause to get you that 20% deposit, you will make yourself more attractive to the banks and avoid the cost of mortgage insurance.
6. Do you really need your own home?
As much as I would recommend anyone currently renting to make the leap onto the property ladder, I would qualify this suggestion by saying that you don't have to be a home owner to own property.
Remaining a tenant and purchasing an investment property is a great option for those just starting out. There are numerous benefits to this including:
You can continue to rent in a suburb where you may not be able to afford to buy just yet.
One way to pay your mortgage off faster is to have someone help you. As a property investor your tenant will help to pay the mortgage and take some of the repayment burden off your shoulders.
You can use your investment property as a steeping stone to get into the home of your dreams and avoid having to compromise on location down the track.
The interest payable on your mortgage as well as expenses like rates and maintenance are tax deductions for investments, but of course this does not apply to your own home.
You are starting to build a property portfolio that will enable you to generate long term wealth and perhaps retire early one day!
Regardless of how you choose to get there, climbing onto the property ladder is a fantastic way to secure your financial future and I would recommend you make the leap as soon as you can. Because if you get it right, the only way is up! (More from Yahoo!7 Finance: Buying vs Renting – Which Will Make Wou Richer?)
Michael Yardney is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog. Subscribe today and you'll receive a free video training – The Golden Rules of Property Investment.
5 tips to help you stash some emergency cash.
A financial crisis does not have to be of global proportions to cause you financial stress. It can be the result of illness, accident, expensive car repairs or even a broken fridge.
The key to surviving a financial crisis is to build an emergency savings fund. Starting your emergency fund now, when times are good, will ensure you can weather the storm should a financial crisis occur.
Sounds obvious, right? However, a recent ING Direct survey found that 1 in 4 Australian households don't save any money at all and only 22% of Australians use the effective 'pay yourself first' savings strategy.
How much should you save towards your emergency fund? A few months worth of basic expenses including rent or mortgage repayments, loan repayments, bills and groceries will make life easier should you lose your job. But if saving that much money seems impossible, even a few dollars set aside each week can pay for car repairs or a new fridge.
1. Build your emergency savings
The key to successfully building your emergency fund is to deduct your savings before you pay the bills. In other words, pay yourself first. Decide how much you can save, and put this amount aside as soon as you get paid.
You will want easy access to your emergency savings when you need them. An online savings account allows you to benefit from high interest returns without locking your money away in a term deposit. Make saving money easy by automatically transferring your savings, before you have time to miss the money.
2. Keep out of the kitty
You don’t want to undermine your savings efforts by dipping into your emergency fund for non-emergencies. Instead, define what constitutes an emergency, stick to this definition and only spend your emergency savings on emergencies.
3. Stash a little emergency cash
Our upstairs toilet recently leaked into the lounge room below, late on a Saturday night. Our emergency cash stash came in handy to pay the plumber that night. While most would advise against stashing cash around the home, a couple of hundred dollars, well hidden, can come in handy when you need money in such an emergency.
4. Pay extra towards your mortgage
As well as savings, another way to build an emergency fund is to pay extra towards your mortgage. Many mortgages offer an offset account or allow you to redraw your extra repayments (check with your lender for terms and conditions). By paying extra on your mortgage you get the dual benefit of building a healthy emergency fund while saving money on interest.
And the kicker? If you never redraw your extra repayments, you could potentially save tens of thousands of dollars on your mortgage and shave years of the term, just by paying a few extra dollars a fortnight. Home loans with offset accounts are easy to find at Yahoo!7 Moneyhound.
5. Minimise your credit card spending
As a last resort, your credit card can come to the rescue in an emergency. However, it won’t be any use if it’s maxed out! Creating a debt reduction plan, will not only to save money on interest, but ensure you have a line of credit, should you ever need it.
Of course, I hope that you will never have to use this advice. But if you do find yourself in a financial crisis, having an emergency fund will greatly ease the financial burden and see you bounce back a lot quicker and a lot happier.
