In this week’s episode, Dave, Cate and Pete take you through:
- How does upgrading fit into your property plan? The earlier you can start planning for your long-term home, the better. However this does come down to stage of life, and often people are not able to picture their future home until they’ve reached a certain level of stability or decided on the location that they want to live in. Understanding how your investment decisions and other lifestyle purchases fit in with your decision to upgrade is also key to making successful long-term purchases. For some, the long-term home may be out of reach due to stage of life or circumstances. For some who aren’t ready to upgrade, rent-vesting or a stepping stone home may be the right choice for you.
- Mapping out your future home Many buyers get hamstrung when it comes to the critical decision making because their search criteria is unreasonable. Having a clear plan on which suburbs to target, property types, architectural styles, land size, bedrooms and living spaces, (to name a few) is key to narrow in your search. Then, to ensure that you don’t get bogged down and spin your wheels while the market continues to run away from you, have a plan of what you will be willing to compromise on if your dream home is out of reach.
- Purchasing a property that you can grow into. The holy grail of property ownership is only ever owning the one home, because each purchase and sale of a property eats into your wealth. Due to changing commitments and affordability, not many are able to achieve their dream home on the first go. However, you may consider buying a home with a larger block size with a smaller dwelling, where you could extend the home as your family grows, to avoid needing to sell.
- Why are money goals so important? Finding a property that you want to live in for the rest of your life can be like finding a needle in a haystack and many are willing to pay an emotional premium to get into their dream home. In this situation, we’re more likely to be stretching ourselves to the largest level of debt that we’ll ever take on. This is why understanding your cash flow and available funds after purchase is critical, so that you remain within your financial comfort zone and risk profile.
- The age old question – should you buy first or sell first? The trio discuss whether you should sell your existing home first or purchase your upgraded home and then sell. The scarcity of the property you are looking for, the market conditions and the settlement period are critical considerations. The trio share their tips on how to navigate the transactions simultaneously.
- How to keep your current home when you upgrade. The Property Planner explains how mortgage strategy can be utilised so that you are in the best financial position to be able to keep your current home as an investment property when you upgrade. However, you need to get your mortgage strategy right today, or it could be costing you the ability to hold on to that property.
- When is the best time to upgrade? The trio discuss when you should look to upgrade and the dangers of trying to time the market.
- Arranging license agreements. The Property Buyer shares a hot tip on how you can arrange a licence agreement to occupy the property you’ve purchased prior to settlement, which can make the moving process smoother and less stressful. Similarly, if you’re selling and you’ve already vacated, you can arrange a licence agreement with the vendor and charge either nominal or market rent during this period.
- Where does upgrading fit into your property plan?
- The earlier that you can be thinking about your plans for your long-term home, the better.
- Often that means that you’ve reached a certain stability in your life or decided the location that you’d like to live.
- Mapping out this plan – suburb, property type, dwelling, how many rooms, bedrooms, 10 things that you’d like to prioritise in the location of your home, living spaces, architectural style, land size.
- One of the biggest killers with the long-term home is people not being able to make a decision.
- Where are you willing to compromise? Is it the price point? The dwelling type? Land size, location.
- When should you not do it? Ideal dream home, but now is not the right time – financial, where they’re going in life is not the same direction, they don’t have kids yet.
- Sometimes you will need to consider a stepping stone home and sometimes rent-vesting.
- This will depend on stage of life as well.
- Can you get a property that you can grow into?
- Larger block size, but with a smaller dwelling, where you can extend and the home can grow as your family grows. The holy grail is only owning the one home, because of the large in and out costs associated with purchasing and selling property.
- Why are money goals so important?
- We’re more likely to be stretching ourselves to the largest level of debt in our lives.
- Looking at your cash flow and available funds after purchase.
- Emotional premium – where is the market value and are you willing to go above that? It’s much harder to find a property that you want to live in for the rest of your life. Homes that you want to live in can be a needle in a haystack.
- The financial stretch needs to be considered, but within your financial comfort zone and risk profile.
- Should you buy first or sell first?
- If you’re trying to time a market, you need to look at the risk of doing so.
- If you’re upgrading you’ll either be buying first and then making sure that you can sell in time for settlement. You’d probably only want to do this in a moving market or if what you’re looking for is super rare and you need to nail it first before selling.
- If you are in a moving market, you can assume that you’ll have a strong buyer pool, unless your property is a bit quirky. A 60 day settlement is often not enough to list and dress your home for sale and then settle.
- If you’re in a buyer’s market, you may be keen to sell first and then purchase – if the market falls in that time, then it brings your upgraded home more achievable. But if the market moves in that time, you could be in a risky position.
- Select your agent and get your house ready to sell, so you can pull the trigger on it as soon as possible.
- Should you sell or keep your current home
- Optimizing your mortgage strategy so that you are in the best financial position to be able to keep the proeprty when you upgrade.
- Paying interest only on your stepping stone home, which will maintain your deductions. You’ll then have more money in your offset that can go towards your future home and you have less non-deductible debt.
- If you live in a regional town, you’ll be more able to achieve buying only one home. But in the city, there are different affordability factors at play and you’re more likely to have to purchase a second home.
- When is the best time to upgrade?
- When you need to. Trying to time the market is very tricky.
- Seasonality could be a point for timing – where there’s more stock on the market.
- If your property that you’re after is so rare, it only comes up once or twice a year, then you need to make a move.
- When you’re ready to buy, you should get your pre-approval in order and start looking.
- Waiting for JobKeeper to end, and many have been priced out of the market that they want to buy in.
- There’s no time like the present – the market rises much more than it retracts. You run a big risk if you wait.
- License agreements
- License agreement to access the property prior to settlement, paying market rent and occupy the property prior to settlement.
David Johnston – The Property Planner’s Golden nugget: get your finances clear and know your numbers. If you don’t know what they are, you could be looking at properties outside of your budget or making it difficult to decide whether you need to sell first and other critical decisions. Whenever you’re ready to upgrade, sit down and take the time to have a frame work to what it is you’re looking for. Why are you willing to live in these locations, what dwelling, land, preferences and compromise. That’s why people bounce around a lot and take longer to purchase. The more you have a plan, the more you can get clear on what you want and what the market will allow you to buy based on your budget.
Cate Bakos – The Property Buyer’s Golden nugget: people who are contemplating an upgrade and think that it’s easy to get bridging finance, think again. Don’t ever make the assumption that you can sort it out without having a chat with your strategic mortgage broker, it’s difficult, far more limited, expensive and stressful.
- Thank you for your feedback. We’ve received a number of listener reviews that are insightful and also gave us honest feedback, which we really appreciate. One was in relation to past performance bias, specifically whether past performance reliably predicts future performance and also the impact of our own personal biases. The Property Buyer acknowledges this feedback and hints at a future episode that will address human biases.
- The state of retail property. In the most recent JLL quarterly retail market report, the CBD retail vacancy rate in Adelaide is the highest it’s ever been since 1993 at 16.8%. Regional retail has only a 3% vacancy rate. However, ‘regional’ in the retail sense has a different meaning to residential property. The Property Professor explains all in his market update.
- Inflation is the talk of the town, but is it here to stay? Increasing inflation should lead to increasing wages, but most people assume that it equates to increased interest rates, making many nervous. Underlying inflation in Australia jumped to a six-year high of 2.1% in the September quarter, which is still well below the 4.6% experienced in the US. This level of inflation is only at the lower end of what the RBA targets, (being between 2% to 3%). The Property Planner talks through the factors that create upwards pressure on inflation, the RBA’s response and whether inflation at this level is sustainable.