It is not as simple as hanging out at the local cafes and getting a good feel for an area! You need to get the home buying process right by taking each step in the right order.
Regardless of whether you are buying your first home or your fifth, there are 3 key variables that affect what property you buy and where you buy it – Price, Position and Property features. These are what we call the 3P mix.
Every buyer will have a different 3P mix that is unique to you. In the first home buyer process, it is important to understand which of the 3Ps are non-negotiable and which ones you will need to compromise on BEFORE you start your search.
Is your maximum Price set in stone?
For most first home buyers, the Price (or your budget) is most likely going to be limited based on your borrowing capacity. This is the Price you can afford to pay. It is important to understand what this number is very early in the home buying process so that you are not wasting time looking at the wrong properties or in the locations you simply cannot afford. Once you know what your Price limit is then you can start looking at the Property type and Position.
One thing that will make your Price flexible is how committed you are to avoiding paying lenders mortgage insurance (LMI). Depending on your income and other factors, you might be able to increase your budget if you pay some LMI. We advise discussing this with your mortgage broker.
What type of Property is going to suit you?
When we refer to Property, we mean the type, the features and the condition. Once you know your budget, you can consider your Property options. For example, an apartment in a higher value suburb, maybe a townhouse in a moderately valued suburb or a freehold home in a lower value suburb. Usually the trade -off is size versus distance to the CBD.
It might feel nice to walk into a brand new shiny apartment or house and land package with lots of features that you love. But new properties generally go backwards in value before they start going up again. Don't overlook older style unrenovated properties that are well located. You might be able to add value by updating it over time.
Layout, room sizes, orientation and aspect are all important characteristics of the Property that you should pay close attention to.
To get the home buying process right you also need to think long and hard about how long the Property will suit your needs. A lot of money is wasted when home buyers outgrow their first place too soon.
Your dream suburb might not be the best location for your first home.
In the 3P mix, Position is how we refer to the suburb, street and location of the home.
For some first home buyers, the Position is their priority so they will compromise on the Property features and finishes in order to live in a certain location. But be very careful about this strategy. If living in your dream Position means compromising too much on the Property then you might do yourself a great disservice in the long run. Buying a one bedroom apartment because that is all you can afford in your dream suburb might not give you the capital growth to even cover your costs when you outgrow it.
Rentvesting can be a great option for first home buyers who cannot face moving away from their preferred suburb.
Everybody has to compromise - even if you had a budget of $5m there will be compromises! By understanding your own unique set of compromises in the 3P mix, you will have a far better idea of where to focus your search for your new home. Keep the long term viability of the property in mind, make sure it will suit you for many years to come and will appeal to a broad range of buyers when it is time for you to upgrade.