Looking to buy your first home? Check out our top 5 tips: Part 2

Did you know that in May this year, nearly 32 per cent of all property purchases were by first-time buyers?

Some of these also opted to buy an investment property as their very first property.
However, whether you are buying a property to live in or to rent out, first-timers should adopt the same investment strategies, including these five.

1. Don’t be afraid of LMI

LMI or Lenders Mortgage Insurance is often seen as an expense that must be avoided at all costs.

In short, LMI is a fee that lenders charge when a borrower doesn’t have a 20 per cent deposit.
However, some potential buyers scrimp and save for so long for that magical deposit figure, while property prices are increasing faster than they can save, so they are forever chasing their financial tails.

This often means they don’t buy at all or pay a much higher price, which is an opportunity cost far greater than the LMI would have been in the first place.
For example, the LMI on a $500,000 property with a $50,000 deposit on average $12,000 depending on the location of the dwelling.

But if it takes you another few years to save the other $50,000, prices are likely to be much higher again. That’s why it’s important to use smaller deposits in the accumulation phase of building a portfolio. 

Indeed, also, if you did manage to save, say, $100,000 you could potential buy two $500,000 properties with 10 per cent deposits rather than just one, which will mean that any capital growth is doubled. 

2. Balance your portfolio

One of the decisions that often stumps new investors is whether they should buy a capital growth or a cash flow property.
The best strategy is to create a balanced portfolio that features both of these types of properties, which will help you to grow, and keep, your portfolio over the long-term.

What I mean by that is capital growth properties that grow in value and create equity that you can recycle into more property purchases.
While, cash flow properties, on the other hand, help you to service your borrowings by way of rental income.
Over time, this becomes passive income as the mortgages reduce but rents rise.  

3. Find a team of experts

Gone are the days when having a home paid off by the time you retire will mean you’ve got it financially made in your twilight years.
In fact, that was never really the case, but in generations gone by our grandparents and great-grandparents didn’t travel overseas as much as we generally do.

Unfortunately, people didn’t live as long either back then, so they probably didn’t need to worry about financing decades of retirement like we do.
These are some of the reasons why more and more people have become property investors, because living on the pension for years is just not appealing.

And the way that they improve their chances of building a successful portfolio is by leveraging off a team of experts. 
The ideal team of experts generally includes a mortgage broker, buyer’s agent, accountant, solicitor, pest and building inspector, property manager and quantity surveyor. 

4. Look outside your backyard

Something else that has changed over the past few decades is the rise of interstate investors.
More and more investors understand that there are different market cycles happening at the same time across the country.

So, rather than buying down the street from where they currently live or where they grew up, they consider locations where prices are primed to strengthen over the short- to medium-term.
Sometimes this is interstate, with affordability considerations being part of the equation, too.

Rather than being limited to being able to afford, say, just one investment property in their home city or region, they may well be able to supercharge their portfolio by two or more properties by looking further afield.
One of the reasons why they are able to do that is because they also recognise that strategic property investment should be emotionless.

5. Stress-test your portfolio 

Another fundamental that all first-time property buyers must do is stress-test their portfolios.
Essentially this means ensuring they have the cash flow, or easy access to funds, that can see them through financial upheavals.

This could be a cash buffer sitting in an offset account or perhaps access to a line of credit. Whichever way it is, sophisticated investors have enough funds available to them to cover their livings costs as well as their personal mortgage repayments for several months if they lost their job expectedly.
Having this cash buffer will essentially mean that they won’t have to sell any of their properties during times of financial stress.