How a 23 Year Old Woman Bought Her Own First Home

Gladys lives in my building and we catch up each month for afternoon tea. It’s a win-win. I get a cuppa served on a saucer, biscuits, and a run-down on all the gossip happening with our neighbours. Gladys gets to check in on the single guy of the building who lives on the roof with his over-sized dog, and has never been seen with grocery bags (“never once … what do you cook for dinner?”).

A few months ago, she bought along her granddaughter for tea. Ingrid is in her late twenties, had just returned from a stint teaching in London, and lives in a share house in inner-city Melbourne with Charlie Sheen.

Ingrid: “My flatmate got drunk last weekend and decided he wanted nachos. He put them in the oven and then passed out. I came home three hours later. The smell was horrific.”

Barefoot: “Have you thought about moving out and buying a place?”

Ingrid: “I can’t afford to, and the way prices are going, I never will.”

Barefoot: “Nonsense. I meet plenty of people who own their own home — and they probably earn less than you. And let me tell you, the next few years will be a time of opportunity. Let me explain why.”

A Man is Not a Financial Plan

In my role as a financial adviser, I’ve helped a woman called Sue, who’s in her mid-twenties and works as a journalist.

She understands that a man is not a financial plan. So a few years ago, even though she was living with her boyfriend at the time, she started saving like crazy for her own apartment.

Around a year later she’d saved up $20,000, and went hunting for a property. It was tough with such a tight budget, but eventually she came across a little one-bedroom apartment in Brunswick (inner-city Melbourne) that she bought for $200,000.

The apartment block is a typical sixties, double-storey brick clinker. Most of us at one time or another have lived in a unit like this – and for those of you who haven’t, you can see similar places on the TV show COPS.

While the unit is small, and the brown brick architecture certainly has Kingswood Country undertones, the body corporate costs are negligible – no pool, no lift, and a communal laundry that leaves your smalls pink.

With its proximity to the centre of town, Sue managed to get a good foot in the property market without taking too much risk. She then rented out the place to students for $420 a fortnight, which went straight towards her mortgage repayment of $745 a fortnight. While the $325 a fortnight difference was a stretch, she treated it as forced savings – even chipping in more money when she could.

Roughly 12 months after she bought the place, Sue and her boyfriend hit the skids, and she moved in with her mother and waited for the lease on her apartment to expire. She then spent a few grand getting the student smell out of the joint by giving it a lick of paint, and after adding some nice second-hand furniture was able to move into her very own place.

The pride, and peace of mind, of owning your own home is one of life’s big achievements. It’s also a very smart asset for a woman to have throughout her life – should she eventually get married she’ll have no worries renting the place out again at a decent price.

Her decreasing mortgage will in time give her financial independence, whether that be as a backstop place to live in case her Romeo finds another Juliet, or as a growing asset to fund retirement.

The pride, and peace of mind, of owning your own home is one of life’s big achievements.

Now Is the Time To Find Your First Home

Until I told her about Sue’s story, Ingrid had never seriously thought she’d be able to afford a place, especially on her own. But I explained to her there was no rush.

I recounted a conversation I had last week at the tennis with a banker (who didn’t want to be named, presumably because he was barracking for Novak Djokovic).

After a few Coronas he candidly explained that the big story for property over the next few years will be interest rates – and how little control anyone in Australia has over them.

“First of all there’s all the money printing that the Americans and the Europeans are doing, which will lead to inflation and therefore a potentially big rise in interest rates at a time when a lot of people are already struggling.

“Second, our banks have to borrow dough from international markets to fund a good whack of their home loans. This year they’ll need about $140 billion – and if the European debt crisis blows up even further, our banks may soon find it much, much more expensive to borrow.”

The banker’s bets may well come true, but in any case the market is clearly slowing – a by-product of four interest rate rises last year.

As a result there are approximately 102,000 more residential properties on the market than this time last year, according to Louis Christopher from SQM Research, who tracks these things. Prices rose just 0.2% in December, after a 0.1% decline in November, according to the latest figures from the RP Data.

All this means that, for someone in Ingrid’s position, now is a fantastic time to be saving for a home. Unlike in the last ten years, when property prices rose faster than you could save, in the next few years prices may actually fall.

The Power of Now

Sue bought her apartment two years – or about $60,000 (in price rises) ago. She’s now 25. The difference between her and Ingrid (and many other people I speak to) is that Sue had a plan, and because of that she was able to seize the opportunity when it came.

The people I meet who comfortably own their own home have all had a couple of years of strategic, strict saving under their belts. And they didn’t just wake up one day with Hills Hoist envy and decide to buy a pad (although tens of thousands of people did – and right now they’re in varying stages of screwed).

Now is a perfect time to be starting your saving strategy – firstly by opening up a First Home Saver Account (FHSA), so you can get a 22.5 per cent return on your savings (plus, your earnings are taxed at 15 per cent, rather than your marginal rate). That one little act can add over a grand a year to your savings plan.

Every bit you save now will help you seize the opportunity to snare your dream property when housing affordability (eventually) comes back.

Tread Your Own Path!