Get on the right ladder, not just any ladder
They call it the property ladder, because in theory, with house prices rising once you’re on it’s easy to climb. But what if the property you purchase is on the wrong ladder, a rickety/broken one, or maybe just a small step ladder?
Even though the market is hot right now, you can still make costly mistakes in property. If you’re a first home buyer, it’s important to be educated to ensure you take the best first step on the right ladder that will accelerate your journey to financial freedom.
Why you should forget the first home buyers grant
I see too many first home buyers limiting themselves, trying to meet the criteria for the Kāinga Ora First Home Buyers Grant.
Under the Kāinga Ora scheme, if you buy an existing home, you can get a grant of $1,000 for each of the 3 (or more) years you’ve paid into the KiwiSaver scheme. The most you can get is $5,000 for 5 or more years for each person (double this if you’re purchasing a new home).
The catch however, is that your income must be under $85k for a single person, $130k for a couple and the house price purchase must be $600k or under for an existing home or $650k for a new build. This severely limits your opportunities, particularly in Auckland.
Trying to take advantage of these offers and deliberately buying established properties which not only is rare, but likely to be of poor quality or buying a new build under 650k would mean you are unable to recycle your deposit, staying in a “One way street” – only if you sell, you can have your deposit back.
Auckland house prices on average double every ten years, borrowing as much as you can afford for your first home is more likely to put you in a better position straight away.
I understand that potentially $10k can seem like a lot of money, and to save the same amount will take some effort, however if you have $100k of deposit (combine with your savings, kiwisaver, family support), there is still the possibility of being able to secure $900k of borrowing to purchase a $1m property.
Our clients, Sean and Jenny, joint income fell under $130k which meant they qualified for the home grant of $10k and could have bought a property up to $600k. Luckily, they took my advice to borrow the maximum they were able and purchased a $940,000 property. They then went on to increase the property’s value to $2,500,000 after the project is completed. This is certainly much better than just buying a cheap property or a new build.
If Sean and Jenny had decided to pursue the grant and bought under $600k or a new build of 650k they would likely still be in a very similar financial position, as the value of that property is likely to have not increased or had the potential to increase it’s value like they did with the one they did purchase.
With the $1.5m extra equity they’ve created in their home, that $10k is not looking like a lot of money now!
If you want to learn about the right types of properties to buy, make sure you head along to my next ‘How to Buy or Invest in Auckland Property Workshop.’
Lucia Xiao | support@luciaxiao.co.nz