Determining price point
A critical step to determining the appropriate purchase price for each property decision is setting your ‘Money Goals’.
The Property Planner’s money tip – Determining your ‘Savings Buffer and Monthly Cash Flow Surplus’ goals for after your next purchase empowers you to determine your purchase price.
In other words, your Mortgage Strategy and Cash Flow should determine your property strategy!
To work out your Surplus Cash Flow, you need to complete the below equation:
- Net income less living expenses and loan commitments = your Monthly Surplus Cash Flow
It sounds so simple doesn’t it!
Here is the example: Net income $10,000 per month less living expenses of $3,500 and loan commitments of $2,000 = $4,500 Surplus Cash Flow per month
If you’re comfortable to reduce your Surplus Cash Flow down to $3,000 per month, this means you are willing to commit up to $1,500 per month towards saving for a property.
You want to take on a level of debt that enables you to maintain a comfortable monthly cash flow buffer, so that you can continue to increase your savings even after your next purchase.
You should set aside an amount of your salary that you do not spend each month that you can use towards reducing interest payable on your debt via the repayment offset and to build up as savings for future investing.
The next step in determining the right purchase price is to factor in:
- Your age.
- Your risk profile (generally speaking you should take on less risk as you age).
- Whether your income is likely to increase or reduce.
- Your total cash savings buffer and equity.
These factors can be considered for each subsequent purchase.
Contact us today to book in a free confidential property planning, strategic mortgage broking, money management or property select meeting.