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How to buy a home and become an investor (on a $40k salary)

How to buy a home and become an investor (on a $40k salary)

A lot of the time, people think that property investment is a game for the wealthy. However, did you know that it’s possible to start creating wealth through real estate even if you don’t have much in your savings account? With a little ingenuity and a lot of the right planning, anyone could be able to put themselves in an advantageous position. 

However, there are some common pitfalls that you need to be aware of. So how does one go about this process? 

Get the right help

It’s no secret that property prices have been rising sharply in a number of areas, and many people feel priced out of the market. However, an increasingly popular option is to secure a guarantor on a home loan. Often this comes in the form of your parents.

If they already own a home and have stable income, their own property can be put up as a guarantee of purchase. This means the guarantor is putting their own property and equity at risk for your home, so there needs to be a strong level of trust between you and the guarantor. Don’t let them down by failing to make repayments! 

Another sound options for many is using their self-managed super fund. An SMSF loan comes with restrictions on who can live in the property, but gives many Australians the help they need for property investment. 

Buy off the beaten track

One point above that you can turn to your advantage is that property prices are rising quickly in some areas — but not all. While Sydney and Melbourne are the powerhouses for homes, by purchasing elsewhere you could get a foothold in the property market for much less money.

For example: Domain notes that median house prices in Adelaide, Brisbane and Hobart are all more than $100,000 lower than that of Melbourne. Finding cheap properties in potential growth areas of these cities could be your low-income ticket to the property ladder.

Take advantage of the low interest rates

The Reserve Bank of Australia has cut the cash rate to historic lows of late, and interest rates on home loans have followed suit. While this won’t last forever, it means there is a golden opportunity to secure a fixed rate mortgage with some very sustainable repayments. 

Once you have a home and can start leveraging equity to purchase a new one, you might be able to secure an interest-only loan on these rates and start building wealth in these homes with ease. It’s going to require strict budgeting and you need to check you’re not overreaching with how much you pay, but it can work. 

Buy off the plan

This is a strategy that many investors use. It entails purchasing property before construction is complete, and then taking advantage of the surge in value anticipated once the development is finished. Many investors use this to expand a portfolio at a rapid rate due to low costs, but it does come with risks.

For example, a development may not be guaranteed to go up significantly in value, which can leave you short-changed. It’s important to do thorough research into a location, the development itself and anticipated market activity to check that you’re making a good investment. 

Turn negatives into positives

Despite ongoing debate, it appears negative gearing is not just popular among Australians on high incomes. The Real Estate Institute of Australia reports that two thirds of investors with negatively geared property are earning less than $80,000 per year.

This offers you significant tax breaks, while capital gains increase, allowing you to minimise short term losses in favour of long-term benefits.

There is no one size fits all solution for buying and investing in property from a lower income bracket, but these are a few ways Australians are getting ahead. Use a home loan calculator to see how various solutions for your financial standing, and speak to professionals about how to take the first step. 

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