Investing in property is a great way to build wealth. However, there can be some drawbacks when getting started as both money and the ability to borrow are needed.
For most new investors, the most predominant issue lies within a lack of capital or borrowing capacity. Fortunately, there are ways to get started investing with little or no money upfront.
When lenders look at finance applications, they are differences in their approach depending on whether the potential buyer is looking to purchase an investment property versus buying a property to live in.
One of the most tried and tested ways to get into the property market as an investor is buying as an owner-occupier and turning that property into an investment.
The advantages of doing this are that the barriers to entry into your first property are far lower.
Advantages of Buying as an Owner Occupier
The first significant advantage of buying as an owner-occupier is that you can possibly be eligible to pay low or no stamp duty.
Stamp duty is typically 4-5% of the purchase price and can be a huge barrier to entry for new homebuyers.
In most cases, it is possible to get the First Homeowners Grant. If you meet specific requirements, you can claim a first home concession for transfer duty when acquiring your first residence.
However, there are some requirements regarding this scheme that differ from state to state within Australia. Check on your local government website for more information.
The other big-ticket issue for property buyers is Lenders Mortgage Insurance (LMI).
LMI is a one-off, upfront premium that is put in place to protect the lender on higher LVR loans (above 80%).
LMI applies to loans where the purchaser wishes to take out a loan with less than a 20% deposit saved. This fee is quite costly and can often be in the tens of thousands of dollars.