by Carly Susic, Melbourne Buyers Advocate
Buying your first home in Melbourne is an exciting time — you’re realising the Australian dream. And no doubt you’ve been working hard for years, saving a deposit and preparing to make one of the biggest financial decisions of your life. So of course, it pays to be as prepared as possible so that you get yourself on the property ladder in a great position to capitalise in future.
Agents love to minimise risk
Agents tend to argue that when you’re buying your first home in Melbourne you can afford to make a mistake. They’ll often say anything to persuade you to make a purchase. But if you get distracted by excitement and let emotions take over, you risk paying too much or buying the wrong property. Agents will say that because you’re young, you have years to earn back any losses. But why not avoid such a big loss? It takes a long time to save a house deposit and a long time of working to claw back any lost income if you bungle your first home purchase.
Buy the house you can afford now
Overstretching yourself based on the assumption that your income will increase can be very risky. If you’re a first home buyer planning to start or grow your family, your income will likely decrease as one or both parents take on childminding responsibilities. And with pay rises averaging 3% each year it may take you a long time to climb the career ladder before you reach a huge income boost. So buy the house you can afford now, not what you expect to afford in the future.
Don’t buy with a short-term view
First home buyers can be so ready to buy after years of saving that they jump in too quickly. They might think, ‘Oh we will live in this for three years and then sell and move up the property ladder.’ Unfortunately this short-term view can be unrealistic. Yes, you may gain equity in the property, but it can take at least eight years to really show gains. I would never buy a property with the idea of keeping it for less than five years.
Don’t buy what you don’t like
It seems like obvious advice, but when you’re buying a first home in Melbourne you may be tempted to snap up whatever is on the market. You may be willing to compromise on features. It’s only when you move into the property you realise that the location is totally unsuitable, the orientation is poor or the layout is completely wrong for your needs. Forget the rose-tinted glasses and really scrutinise each property so that it truly meets your needs — you may be living there for ten years!
Anticipate your future needs
If you’re starting a family, you may find you outgrow your property sooner than you think. One client purchased a small three bedroom house, and proceeded to have three daughters in four years. Those daughters grew up quickly and the family of five was struggling to live in harmony with just one bathroom, a small hallway, one living space and two sisters sharing a room. There were plenty of squabbles to say the least!
If you’re buying an apartment
First home buyers often begin with an apartment, which makes a very affordable investment and a great way to get on the property ladder. I always recommend never buying off the plan. The best apartments in Melbourne tend to be the ones built in the 50s, 60s and 70s. They have many benefits:
- they’re spacious, with bigger rooms
- they have high ceilings
- they are typically low density, with fewer apartments in the block
- they tend to be in desirable locations that will always be in demand
- they are well built
On the other hand, high density apartments are built more recently and tend to be cramped, smaller and highly available, impacting the potential resale value. Scarcity and rarity always drives demand. Even though it’s an apartment, land value still matters. If you buy an apartment with 50 other apartments, you have one fiftieth of the land value. Whereas if you buy on a block of eight seven other apartments, you have one eighth of the land value—which will benefit you down the track.
If you can’t afford a house, consider a villa
If your budget is limited, a villa unit is a great option. They can be freestanding, with as little as 4-8 properties on a block. You get your own private courtyard and garage, and they’re spacious, airy and roomy. These are always in high demand as they’re not being built anymore so are likely to be a good investment to get you on the property ladder. You get more land with a villa, which means better resale value later on. Be wary of company share and stratum titles on both villas and apartments as banks can be reluctant to offer mortgages on these properties. Always have the contract and section 32 checked by your legal representative who can confirm what type of title you are purchasing.
If you’re buying your first home in Melbourne
If your budget allows you to buy a freestanding home, it can be beneficial to save a 20% deposit to avoid lenders mortgage insurance. You are entitled to stamp duty concessions if the property is valued at less than $600,000 and there’s a sliding scale for properties valued under $750,000. However, don’t stay below that threshold just to save on stamp duty. That saving could be absorbed into equity growth if you purchase a higher grade property above the threshold.
Research, research, research
The more you research the more likely you’ll make a sensible purchase. If you know the average prices of properties in your target area, you’re less likely to make an emotional decision and pay too much. You’ll be well aware when agents mislead you about demand or prices. You really cannot be too prepared or informed about the area you’re considering. Check with councils about proposed developments in the area and even the street you’re considering. You’d hate to buy a home and find that a three storey apartment building is planned for next door.
Consider what you’re willing to renovate
Are you ready to undertake a full reconstruction, or do you prefer a cosmetic touch up? If renovation is on the cards, are you able to extend out on the property or do you need to add stairs and go up a level (which is typically far more expensive)? Be very clear on your capacity to renovate and the budget that it requires before you make a commitment. Renovation takes plenty of time and mental headspace to manage the project, and can be very stressful (ask anyone who’s renovated).
Really think about the floor plan and how it works for you
In particular, pay close attention to the plumbing. If you want to add a bathroom or move the kitchen, the plumbing costs will be one of your biggest renovation expenses. So consider how you can live in the home as it is now and how easily it will be for you to adjust the floor plan. The more rooms you intend to change, the more the renovation will cost in future.
I had a client who was considering a property with a view to renovation. When we worked through their desired floor plan, we realised that the renovation was so extensive that only two rooms would be in their original state. Effectively, they would be gutting the entire house as the floor plan was so unsuitable. Eventually they realised that the property was not right for them and later purchased a home that didn’t require such a considerable investment in upgrades.
Check out the suburb
Look at the street—are the neighbours investing in renovating or upgrading their homes? Or is it full of old homes that are falling into neglect? Beyond the street, how is the suburb faring? Is there access to facilities like schools, transport, amenities and shops? Is there investment in local facilities by the council? The level of access will impact future demand for your property when it comes to selling.
Always get a building inspection
It can be tempting to avoid a building inspection when you have no guarantee of purchasing the property later. But you really do need to know whether there’s any big expenses coming up. Many first home buyers skip inspections on properties that are less than three years old. But often these homes are the ones that have the biggest construction issues. So always get a building inspection — no matter what!
Beware of FOMO and be patient
First home buyers tend to get very excited when they first embark on the buying process. And after a few months of searching, they can become dispirited. Perhaps you missed out on a few auctions and you’re tired of spending every weekend inspecting. You’ve told all your friends and family your plans and they keep asking you how it’s going. When you start to feel that frustration, you become vulnerable to straying from your buying plan and buying whatever is on the market. This can mean you wind up with an inferior home that will be difficult to sell later or simply doesn’t meet your needs. So be patient. The market always has new properties appearing. It’s better to take your time and stay strategic till you find the home that ticks all your boxes.
So to recap: buying your first home in Melbourne:
- consider an apartment or villa to get on the property ladder
- look for scarcity – apartments or villas with lower density, built in the 50s, 60s or 70s
- never buy off the plan
- research the market thoroughly
- always get a building inspection
- consider your willingness to renovate
- scrutinise the floor plan
- be patient and take your time to find the right property
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