Although I’ve been investing for the last six years, I’ve never considered buying an investment property.
And now, I am trying to purchase a property:
- On my own without a partner
- Without a guarantor or any family support
- Without selling my stocks or any other assets
- That is an investment so no stamp duty concession
- With a under 20% deposit so I have to pay Lenders Mortgage Insurance (LMI)
- In Melbourne, where the median house sale price is $1.08 million.
I have chosen literally the most difficult way to buy a property. Yup. Maybe I am an idiot. Moving on…
Why I have never bought a house
I’ve had my own reasons for this but the three key reasons were:
Cost: Houses are expensive! From a 10-20% deposit to LMI to maintenance, owning a property was going to be a stretch in my budget.
I personally would prefer to own a house while having wiggle room in my budget. There is no point owning a house if you can’t even afford KFC the next day!
Liquidity: As a 20-something year old, I didn’t know how I felt about locking up my money in an investment. With stocks, I can always sell them and get my money within the week. However, selling a house is much more challenging. I’ve always enjoyed the freedom not owning a property gave me.
For example, I was made redundant in 2020 (thanks, COVID!) and I didn’t have a job for 4 months. As I didn’t have a large commitment like a mortgage, I was able to survive that time using my emergency fund and keeping my expenses low.
Owning a house without buying a house: With REITs, you can invest in property without buying an actual house. Kind of like stocks but for property. You can check out my article on it by clicking here.
Why I’m buying an investment property
Better financial position: After working in corporate for six years, my career has grown and so has my salary. At this stage, I am able to service a mortgage without having to eat lentils and rice everyday.
I know what I want: I’ve had time to think about what my money goals are, if I am comfortable being locked into a mortgage. I’ve decided that I am.
How I’m buying an investment property
Okay, so I’ve chosen the most difficult “pathway” to buying a home. But, here’s my plan.
Buying a property further out: I won’t be buying a house within 30 minutes of the city and that is okay. I’ll be looking at areas that have great infrastructure, amenities and growth potential. This will knock down the cost of the house.
Removing my emotions: I don’t care if the house doesn’t suit my personal taste. It doesn’t matter if I personally don’t like the layout or if the location isn’t to my taste.
All I care about is, is it a good investment, will it make me money?
This is another tactic that will help me find a better value home that I can actually afford. People with more money can buy the beautiful townhouses, not me!
Taking my time: This is a simple but a big one. I’m taking my time. I’m not rushing into a buying a property. It will take to save a deposit from scratch as I am not touching any current savings or assets. It might take a couple of years but that’s fine with me!
However, it is a balance as you’ll see in my next point:
Giving up the 20% deposit dream: I always wanted to have a 20% deposit down when buying a house. That was the dream. Why would you pay an extra LMI cost of tens of thousands of dollars when you could just be responsible and save enough? However, saving up 20% means double the years of saving. So instead of buying a home in 2 years, I would be looking at 4. I’ll give up 2 years of capital growth but over 4 years is substantial! I’ll buy with a 10% deposit, suck it up and pay LMI.
There you go, that is how and why I am buying an investment property. My focus for the next couple of years is to put my head down and save enough cash for a deposit and all the costs associated with buying a home.
I just hope I won’t be tempted to invest the cash on stocks, instead!
If you too are in the process of saving cash, here are some articles that may help:
If you have any other questions about emergency funds, feel free to send me a DM on insta @themoneymarketerblog or send me an email on email@example.com!