How to buy your dream home.
How to buy your dream home.
With Housing prices compared to income drastically more compared to those of our parents, it is becoming extremely hard to purchase your Australian dream of land near your place of work.
With The median House price within 50km of the Sydney CBD being over 1 million Individuals on middle to low income have to come up with a huge deposit which is just not attainable.
Rentvesting
This particular strategy is where you choose to rent where you want to live and use that extra money to buy an investment property which will have a higher growth rate the your rate of savings, The result of this will be a equity gain that is higher than what you could saved in the same period of time.
The benefit of this is that you'll be able to live close to your job for your desired lifestyle locations all while building up your equity.
By investing in a location where it has excelled growth drivers and high rental yields you can hold a portfolio of investment properties which will cost you nothing (as the rent will cover all repayments) all while getting a solid growth rate off your asset base.
Coming up with your dream home deposit
If you are not a first home buyer and cannot access the first home buyers scheme you will have too come up with a 20%percent deposit without having to pay LMI (lenders mortgage insurance), Now pair this with a 1.6 million dollar property which is the median house price around the outer ring of Sydney, you'll all have to fork out $320,000 for your deposit. You will also have to pay legal fees, building and pest and stamp duty which is normally around 5% of the purchase price. So your total cash required for a 1.6 million dollar dream home around Sydney will be $400,000 with no LMI.
Now lets look at Buying 2 investment properties interstate in excellent growth prospect locations.
Property 1 - purchase price= $400,000, deposit of 10% with (LMI added onto loan)= $40,000 than add 5% for extra fees, your total cash outlay would be $60K.
Repeat this scenario and buy another property with the exact same cash outlay, You've spent a total of 120k and your holding a $800,000 dollar property portfolio.
Now if we bought in the right area we could get a 7% growth rate on that 800k asset base which would be $56,000 in equity gain in the first year.
Fast forward 5 years and your 800k portfolio now has a value of 1.12 million dollars. That is a $320,000 equity uplift. If we were to compare this to how much you would be able to save in 5 years from your income, it would be no where near this amount.
With this $320,000 growth in your net wealth you would've been also saving those 5 years so you can add your saving onto of this.
Releasing your equity gain
Banks will let you pull out 80% of this $320,000 which is $256,000 and add this with your savings over the 5 years from your income of 100k Thats $356,000 you'll be able to put towards your deposit of your dream one in your dream location.
If you didn't purchase those 2 investment properties you would only have the capital the you would've saved from your income and no investment properties to further produce you compounding growth for your retirement.
By choosing to invest in property you now have your dream home and 2 interstate investment properties which will be paying themselves down until they are spitting you passive income every week and you can finally step back from work and enjoy your life of freedom.
The above information is why we choose to use property as a vehicle to financial freedom and also use it as a strategy to eventually purchase your dream home.
Written by Tom King
Director Bez property buyers