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  • narelle000

Getting in is the hardest part. Make it your best move.

So much is written about housing affordability and how challenging - seemingly impossible - it is for young people to buy their first home these days.

I'm presenting a property fundamentals session to young professionals this week who will be first-home buyers in the next few years and I love providing them the market insights so they'll make better decisions when the time comes.

There's so much for first-home buyers to navigate.

There's the finance for starters.

Saving an enormous deposit while the market keeps streaking ahead.

Maybe living with mum and dad to try to save even more, even faster.

Investing in the share market to get the best return on their savings.

Knowing what to buy and where to buy it.

Then there's navigating the minefield that is the property search, diligence and negotiating to sale itself.

It's far from easy.

First home buyers can be soft targets.

They can be lured by concessions and promotions and they can be victims of well meaning, but ill-founded advice from family and friends.

I get so much satisfaction from helping them build a purchase strategy that will both serve them now and set the foundation to leverage off later.

One thing I often see is first home buyers buying apartments (especially off-the-plan) or house and land packages just to "get in" because they feel it's the best they can afford or it's the best value for money.

Full disclosure now.

I am not a huge fan of either.

I'll tell you why.

If you were to give me a choice between buying an apartment and a house in an established location then I would take the house every day of the week.

The numbers don't lie and capital growth is driven by the appreciation of land values.

Apartments typically have a tiny fraction of their purchase price attached to land they're built on and the land value of a house and land in a new development is also very low.

Basically, you're paying too large a portion of the purchase price on the dwelling component which declines in value over time.

Purchasing these properties will not grow your equity in line with the market and that's what first home buyers need to do.

Building equity in the first decade of property investing opens up many more options.

I recently analysed a case study of a colleague's 2011 purchase of an off-the-plan townhouse in Northcote.

They were attracted to the stamp duty savings and, I suspect, a new, on-trend fitout.

At the same point in time, with the same budget, and in the same suburb they could have bought a 2 BDR Victorian terrace in liveable condition and on a larger-than-usual piece of land.

Today the house would be be worth an eye-watering $500k more in value nine years on.

In the above case study, if it was the townhouse lifestyle they were truly after they'd have been better off to rent the new townhouse to live in and buy the terrace to rent out.

It's called rent-vesting.

It can be a great option, and not just for first home buyers.

Rent-vesting is when you rent the house you want to live in in the area you want to live but use your finance to buy a property that will perform better.

The buyers in the case study nailed the suburb choice (Northcote has broken records in terms of capital growth) but sadly not the asset choice.

They moved out of the townhouse when they outgrew it a couple of years ago and now rent the type of house they'd ideally like to buy (which is worth about $1.8m).

They could sell the townhouse for $900k but they wouldn't get finance for the additional funds required. If they were selling the terrace instead, they'd have the extra borrowing power from the additional equity.

This makes me really sad.

I can't give financial advice, but I can explain how different assets perform so that the right decision can be made.

I love helping first home buyers map out the options of what their budget can buy them and working through what each one will mean for them in 10 years' time because I genuinely want the best outcomes for them.

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