Top six tips to get into property in 2022

With Australian property markets showing signs of slowing down in our major capital cities, many prospective first-home buyers are wondering if it is still an opportunistic time to get their feet on the property ladder.

Last year, Australia’s first-home buyers benefited enormously from a combination of government support through programs such as the First Home Loan Deposit Scheme, which lowered the deposit threshold for many new home buyers, the tail end of historically low-interest rates that boosted their borrowing power, and a broad pause in investor competition for entry-level properties.

Australia’s property market is turning and there are opportunities to purchase now, despite the rising cost of living and the prospect of interest rate rises. Some potential property buyers fear they’ve missed the bus because of the exponential growth seen in real estate over the past two years.

But there are still many options out there provided you combine a sound investment strategy with a smart approach. Here are six tips to assist buyers in navigating the market:

1: Buy as soon as you can

If you can afford to buy a property now, then don’t fail to make the most of the market. Property is always an expensive asset to purchase. Back in 1980 when I purchased my first home for $26,000, I thought I’d be eating baked beans for years just to pay the mortgage. Sounds utterly ridiculous but it proves the point that whenever you buy property, it always seems very expensive.

Over time, having paid down some debt, realised capital growth in the property, and enjoyed a wage increase, more intensive headway can be made on the mortgage. It then becomes more feasible to use the equity in your property to invest in another property. As interest rates rise there’s more scope for negotiation.

2: Become a rentvestor

While the idea of living in your own home is tempting to many, there is an attractive financial incentive to making your first home an investment property. For those wanting to take a different and easier approach to home ownership, rentvesting is emerging as an increasingly popular strategy.

This allows you to live in one of your preferred suburbs where you can’t afford to buy as a tenant, while still providing the opportunity to enter the property market via an investment property you can afford.

Rentvesting allows you to rent where you want to live and build property assets in more affordable capital city suburbs. All your investment properties are owned and controlled by you and the expenses attached to those properties are tax deductible and therefore up to 40 per cent cheaper than your own home.

It helps that you don't need to pay your entire mortgage when you have the tenant doing it for you.

It has become a popular method of investment for women, in particular, who are overrepresented as single parents, have on average lower superannuation, and may endure a pay disparity.

3: Purchase a positive cash flow property

In uncertain times, prioritise investment properties that will work in your favour, particularly those that generate positive cash flow. These properties cover their running costs.

So, you don't have to make up the shortfall on your mortgage every month as council rates, water rates, insurance, property management fees and other costs, are covered. Doing a disciplined degree of due diligence will pay off in the medium term and is a critical part of the purchase process.

4: Buy in capital cities with lower price points

Diversify your risk by buying houses in capital cities for less than $500,000 that offer high cash flows and are close to local amenities, including entertainment complexes, shops, transport, schools, and easy access to employment hubs. This diversifies risk and potentially allows you to build a property portfolio faster.

5: Buy to add value to the property

Properties that need minor cosmetic renovation but are in a great location can be worthwhile targeting, provided the home is structurally sound. New carpets and fresh paint are relatively inexpensive and can improve the look of a property, potentially increasing the rent and making it more desirable for a tenant to rent.

Other properties to target to add value would be those on a subdividable block of land where you can build a second dwelling at the rear of the existing home, or property where you can add a granny flat and gain a second income.

6: Treat your investment property like a business

Before signing a contract, make sure you've considered all the costs associated with the property, not just the mortgage repayments, and calculate how much the property will cost each month to hold.

Knowledge is power and understanding those costs will give you the confidence to either move forward and buy the property or let it go and look for another property.

A final observation

If you need your money back within five years, don’t commit to buying property. Entry and exit costs are steep and downstream mistakes costly. If you’re not excited by the idea of owning a property in 20 years’ time that you’re currently considering buying, do not buy it. Think again.

Remember, the biggest investment you can make is in yourself. Devote 30 to 40 minutes every day to expanding your property knowledge by reading reputable property articles and listening to podcasts until you’ve increased the depth of your property investment knowledge.

Regardless of what happens with interest rates or inflation, look to improve your financial position by having a well thought out property strategy and ensuring you follow the due diligence process with each property purchase.

DISCLAIMER: All information provided is of a general nature only and does not take into account your personal financial circumstances or objectives. Before making a decision on the basis of this material, you need to consider, with or without the assistance of a financial adviser, whether the material is appropriate in light of your individual needs and circumstances.