Emotional premium

How much should I pay for this property that could be my home?

Purchasing a home to live in is a very personal choice. As such, it is worth placing an ‘emotional premium’ on the price you are willing to pay (subject to affordability), for the following reasons:

1. Fewer properties are likely to meet your personal requirements for a home.
2. You want to aim to hold all properties you purchase for at least seven to ten years. This means it is vitally important to purchase a property that you are happy to live in for a significant period.
3. Most people don’t want to regret a decision not to buy a home they could have afforded and would have enjoyed living in.
4. If you are buying in a strong market, you might end up paying more for a similar asset due to any time delay in purchasing.
5. If you pay an emotional premium to purchase a home, you will dilute the premium the longer you hold the asset. The ‘real cost’ of the ‘extra’ amount you pay to ensure you purchase the property, becomes less and less over time. Because the value of money reduces over time due to inflation. Also, the affordability risk usually reduces the longer an asset is held. Even if you spend an extra $15,000 and hold the property for 15 years you could simply average the extra cost to $1,000 per annum although this is not a precise method of measuring the cost. The main point is that the value of money reduces over time due to inflation, and the cost risk reduces the longer an asset is held.

Keep in mind – to secure a property, you need to be willing to pay more than the other potential buyers. You just do not want to pay a lot more!

David is the Founder and Managing Director of Property Planning Australia, author of ‘How to Succeed with Property to Create your Ideal Lifestyle’, co-author of ‘Property for Life – Using Property to Plan Your Financial Future’, co-host of the ‘Property Planner, Buyer and Professor Podcast’ and a widely-published media commentator. With more than 20 years of experience, David is passionate about educating others to make informed, and ultimately, more lucrative property investment decisions. David established Property Planning Australia in 2004 – with the vision to educate and empower Australians to make successful property, mortgage strategy and money management decisions.  Property Planning Australia’s operations have earned acclaim and national industry awards for its unique fusion of property planning, education, money management, mortgage strategy and risk management. All supported by multi award-winning customer service.