If the recent property price growth predictions become reality over the next couple of years, more homeowners may become ‘priced out’ of their desired location. What might be affordable today, could quickly become unaffordable, as prices can rise quickly.
Sometimes it’s not possible to buy your dream home in one fell swoop. But do not despair. A steppingstone strategy could be the solution.
Buying a dream home has always been a struggle, embrace it
Property has always seemed expensive. I bought my first property 23 years ago for $150,000 and it was a big deal. It was a stretch, financially. It was a dump that needed renovating.
Getting onto the property ladder and buying your dream home will take work. Some sacrifices. A little bit of hustling. But that has always been the case. Focus on the solutions, not the problems.
Focus on building your deposit/equity
If you are income-rich but asset poor, you need to build equity to extend your purchasing power. That equity could come in the form of cash savings/deposit or equity in an existing property.
If your income earning capacity is limited, then accumulating more equity reduces the amount you need to borrow and as such, you are closer to being able to buy your dream home.
Either way, your sole goal should be to build
equity.
How to implement a steppingstone strategy
A steppingstone strategy involves buying an owner-occupier property with the sole aim of accumulating as much equity as possible, as fast as possible. Then, selling that property and using the equity to upgrade to a superior property. And continuing to do that until you have attained your dream home.
There are three key steps to this strategy.
Step 1: Pick a location that has attractive short term growth prospects
Buying a property in a location that is popular and is enjoying rising property price momentum can do a lot of the heavy lifting for you.
The goal is to create equity as soon as possible. Therefore, it’s not as important to form a view about a given location’s long term growth prospects, unlike when buying a pure investment property. You just want to form a view about whether the price momentum will continue in the short term.
Typically, loc
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