I recently had a former first home buyer client from a couple of years ago contact me regarding the potential purchase of their first investment property.
This was always the plan for these clients, and we had this in mind when purchasing their home back then.
I love it when a plan comes together because their home now has enough equity for them to re-invest it into another property.
But their success also really got me thinking about a few things, including why it’s so vital for every property that you buy – and especially your first home – to be treated as an investment.
First home also an investment
While it is predominantly used for shelter and lifestyle, your principal place of residence, or your home, should absolutely be viewed as an investment.
Not only can it help to propel your wealth-building strategy, buying with an investor mindset and a focus on fundamentals can be a game-changer for your financial future.
Can you ever imagine saving hundreds of thousands of dollars through your salary or wages?
For most people, that is just a fiscal pipe dream, because they just don’t earn enough to set aside thousands upon thousands of dollars every month in savings.
Plus, humans also like a bit of discretionary spending, so that burgeoning money pile is often reduced because we go on holiday or decide to splash out on a car, which is fair and reasonable after all from time to time.
The truth of the matter is that you can grow wealth via equity in your home at a much faster rate than you can ever “save” money.
In fact, your family home really is your most prized asset.
Reusing equity
By purchasing a home that also ticks numerous investment fundamentals, it will become possible to unlock its equity in the future to fund the deposit and purchase of an investment property – just as my clients are about to do.
Essentially, this strategy involves creating an investment property portfolio with little or no cash, but with the power of “other people’s money” or OPM.
Now OPM doesn’t mean borrowing funds from relatives, it means borrowing funds from banks.
Using this strategy, your “cash on cash” return on an investment property purchase can be absolutely huge.
Indeed, the ability to leverage into more property is one of the things that I love about property investment as a wealth creation tool.
To maximise your chances of superior financial results in the years to come, though, it’s imperative that your first property is not your last.
This means you should push harder or buy smarter to ensure the initial purchase is right and can pay dividends down the track in terms of higher capital growth, which can lead to a bigger wealth base and more options to unlock equity.
For example, committing to buying a smaller house or semi versus a unit; stretching to buy into a blue-chip suburb; deciding to get into the market sooner rather than later; not buying inferior properties and never overpaying for real estate in general.
Likewise, renovations to your family home will not only enhance your lifestyle, but they will also add value to the property, which can potentially increase your equity position further.
Chances are if you have owned a house in a major Australian town or city for a handful of years, you’ll likely have a nice chunk of equity sitting there.
This means that, depending on your household income and expenses, you may be able to unlock this equity to purchase an investment property.
A single investment property held for 15- to 20-years can be a game changer in retirement when combined with your superannuation – and your financial situation can be even more lucrative if you have the ability to create a small, but powerful, portfolio all because you bought your first home with an investor mindset.
