HAVING TROUBLE BUYING A HOME? HERE’S TWO SOLUTIONS.
If you’re struggling to buy a home in your dream area and you can’t understand why prices are so high, we’ve got a couple of alternative ideas.
THE FIRST SOLUTION RENTINVEST;
This simple idea sees you and your family renting in the ideal suburb and investing in your future with the capital you’ve saved by not buying an overvalued property.
Here’s one example from a sought after area in Melbourne;
The median house price in Elwood is $1.42 million. The mortgage repayment on this property would be $7,237 per month, but to rent the same property the rental median would be $3,250.
Leaving you $3,987 per month to invest in either another financial avenue for long term investment, or to begin building a property investment portfolio targeting outer suburbs with future growth potential and good rental returns.
If you use your deposit to purchase a property in the area of Frankston for $400,000 your mortgage repayments would be $1,583. The median rent for Frankston is $1,516.
So just to recap from the scenario above,
•You now live in Elwood (congrats!).
•Due to your smaller deposit you currently have $204,000 left over to spend how you wish.
•You are about $60 short of covering your monthly mortgage repayments with the rent you now earn.
•You still have a property investment in a promising growth area.
•You only spend in total $3,250 on your rental property (rather than $7,237)
Of course there are other outgoings like insurance, rates, etc… but it’s pretty clear your generally better off if you went down a similiar route.
THE SECOND SOLUTION: commercial property investment.
The average rental return for residential properties across Australia’s capital cities is 3.6%. In contrast, it’s not uncommon to get anywhere between 8% and 12% gross rental yield for commercial properties.
Commercial properties tend to be lower in price than residential properties so you can get away with a smaller deposit. For example, a car park can cost as little as $80,000 as opposed to $400,000 in the same area for a rundown studio flat. There are no rates or other outgoings like council rates, water and body corporate, your tenants pay these instead. Be mindful, it can be more tricky to find a tenant once a commercial property becomes vacant, but you have the benefit of longer leases. Commercial tenancies tend to be anywhere from 3-10 years.
You could actually bundle this with the Rentinvest example above. So you would use your spare $204,000 towards a commercial property and that would mean you have a property portfolio with diverse investments. Which is good because if the economy is weak commercial properties usually falls first.
Whatever you decide, whether its residential or commercial it’s important to get an approved plumber from a big company to check the water functionality of the property. This is because most home maintenance nightmares are caused by water. And don’t assume this only applies to old homes, many companies skimp on costs like pipe width and don’t have the experience to understand that increasing the amount of properties on a block can cause problems with ancient plumbing.
If you do decide to go down the residential route just make sure the property was not built on a commercial plot, otherwise it won’t come under the 7 year builders warranty. If you ever look at a property because you want to develop or extend, it’s vital that you check out the local area plumbing. The best way to do this is to download the South East Water app onto your smartphone
