Strategy for a Young Adult

Hi guys,

Recently graduated university and getting a full-time job in the CBD earning $72.5K (gross). I've currently got $65K in savings through working and my parents saving money on my behalf (I'm a lucky kid). Currently renting for $700/pm and will need a place to live, hence having the cliche of not wanting to pay rent when I could be paying a house down.

Looking towards my future financially and eventhough I've been reading a lot about the property market, I'm still worried and overwhelmed about making big mistakes with my money. I've got a couple strategies on my mind but my inexperience makes me unsure if I'm heading in the right direction. Hoping someone could give me some insight if they were in my situation.

What I've got so far:
1. Buying a house for $500-550K range in the western/northern outer suburbs (Glenroy, Broadmeadows, Epping, Sunshine, Laverton, etc.) Living in the property for 5-10 years and hopefully upgrading to a suburb I prefer.

2. Buy a unit for ~$500K in the western/northern inner suburbs (e.g. Brunswick West, Footscray, Preston, Coburg, etc.) and live with more convenience while it appreciates and sell. I was looking at prices and it seems they do contain similar growth?

3. Buy a cheap <$400K apartment much closer to the city for lifestyle benefits and upgrade at a later stage. This is probably the most risky "I'll deal with it later" strategy I have.

4. Keep saving and working for a few years until I have a larger deposit with a greater salary.

Thanks for any advice!

Regards,
Jason

 

@Y-man sounds like the right option and thanks for the suggested suburb/property too!

I'll definitely have a more detailed research session in the coming days.

Should I be looking for established homes or new developments?

And how important should growth (property, infrastructure, etc.) be when comparing between suburbs? Like choosing a cheaper (more run-down) property in a suburb with expected growth in the coming years versus a better more expensive property in a location that might not grow in the next 10 years.

 

Property for the most part should be a capital growth strategy. If it does not grow in value, you're wasting your time and experiencing "opportunity cost" by not having the funds deployed elsewhere, where you could be getting growth.

 

Option 1, if not that, then option 4 while at the same time doing option 5 (learn how the share-market works).

 

@Propertunity That makes complete sense, I guess my main struggle is finding a place to live so that I don't pay rent vs. buying a property that has growth but I think they can both be addressed if I'm diligent enough in tracking the right place down. Will keep that in mind.

Already on option 5 haha but if I do decide to purchase a property, this avenue will probably have to slow down quite a bit for myself in terms of my financial budget.

Thanks for the insights!!

 

Or option 6. start a side-hustle - a business on the side.

 

Hi Jason, and welcome to the forums

Your strategy needs to come down to your own personal skills as well. if you're going to be living in it and you're a handy kinda guy, buying something you can do up over time to add value will give you more margin for error than if you bought something new and was totally relying on the market for growth.

I wouldn't buy an apartment - if you've got additional rooms you can rent them out to friends to help with cash flow which will help you get to stage two much more quickly than if you're spending your whole budget on a small apartment.

 

@Jess Peletier @Propertunity and @The Y-man maybe you can help me as I am in a similar position leaning towards purchasing a property in Epping with a price limit of $500,000

I am a bit unsure whether I should buy in today's market or continue to save and maybe purchase mid to late next year.

I have about 62k savings at the moment but currently am saving at a rate of $3500 per month. I will be looking to move in for the first year then renting out after the initial year to get the benefits of free stamp duty and then move back in with my parents for maybe anywhere between 2-4 years while putting the property on rent to help with additional repayments on the house or to either save up for a deposit for another IP.

With my current budget at the moment pushing its absolute limit is $500,000, considering in 12 months I would have another $42,000 towards my deposit which would obviously that would add to my limit. But then that would push back the start of renting out my property 12 months too of course so it delays the whole investment and additional cash flow from rent towards mortgage/second deposit by 12 months.

What would be your advice, purchase now on a budget and maybe settle for a house that needs a bit of work in Epping or keep saving for a higher budget and maybe even find a under market value sale within the next 12 months, which I am very doubtful off, I have been attending so many opens and auctions and seeing properties for over their EPR which is really annoying. The whole process so far has been so time consuming and frustrating.

 

Can you find a house in Epping that needs work, for $500K??

Maybe you can, maybe you can't. But if the market moves up by 10% over the next 12 months, then your $42K of savings has not kept pace with the growth of the property market.

I have a wealthy friend who had a saying many years ago now - "The market does what the market does and it doesn't do it to you". You just aren't "with it" yet.

My advice would be to stop trying to second guess the market. I don't know what it will do anymore than you do. You can only make a guess on the balance of probabilities - which will either confirm you are a genius like all the other property guru's or ......not. Just buy when you can afford to, much like the strategy of "dollar cost averaging" in the share market. (google it if you need an explanation).

Cheers and all the best with your investing

 

Ah yes! Why they have to do that in a country as small as Australia, I don't know. I've made the same error when offering to drop in to see a client in Surry Hills (SYD & MEL although the spelling is different, but pronounced the same). Perth in TAS as well as Perth in WA.....and so on.

 

@ZAY - Good to know there's someone else in the same situation as I am, welcome to the club!

@The Y-man , @Propertunity , @Jess Peletier - Thanks for the advice guys, being relatively new to a lot of this, the advice is helping me make a more informed decision on my property research .

I guess the last thing really worrying me now is the looming recession that many people are talking about. I've been having conversations here and there with friends and family about it and its giving me a bit of grief.

The main concern I have is whether it is worthwhile waiting for the market to drop further hoping prices will lower, so that I have a higher potential for growth when the market recovers. Also wondering if lenders will be more hesitant during this period and its implications.

Another concern is that if I get a mortgage for a property now and we enter a recession, what should I be expecting in being able to repay my loan then?

I'm worried about being too hasty to buy a property in what seems to be a risky period in our economy but also whether there is any point waiting because getting a foothold in the market has its value through time over timing.

Jason

 

The biggest thing I've learnt since starting my journey - don't listen to a single thing family and friends say, unless they are genuine EXPERTS in the field they are talking about.
Everyone THINKS they know what they're talking about, but they don't. Do your own research and just nod and smile when those non experts talk about something.