Why is it so important to have a Property Plan before you make your next purchase?
The simple answer: it’s a really expensive mistake if you only consider your short-term.
Property is the most expensive asset class for most AND the only asset class we live in. The combination of it being a lifestyle asset, that we have a deep emotional connection to, as well as an investment asset, causes a lot of confusion. One of the critical mistakes is needing to sell too soon. With up to 6% of the value of your property going to stamp duty or 3% going to selling costs – this becomes an expensive mistake. You need to make at least 10 percent capital growth, in simple terms, just to break even.
Take an example of people we met with recently – Susan and Michael. A young couple who purchased a two-bedroom unit, 3 years ago and who had been hoping to keep that property as an investment and buy a larger home. Fast forward – and they are married and planning for their second child and bursting out of their two-bedroom unit and cannot afford to leap into their next property without selling. They also did not have a mortgage strategy that aligned with their future Property Plans, which means that there are now less financial and tax benefits to holding the stepping-stone home and turning it into an investment. Alternatively, this first purchase perhaps was not the right property to buy, but they did not take a long-term view.
This is why Property Planning is important before making the decision to purchase one of your largest assets over your lifetime.
It can be an expensive mistake for two major reasons:
1. The cost of getting in and out of property (stamp duty fees, solicitor, real estate agent)
2. You make the decision to sell the property before it could appreciate in value, sometimes without even covering the costs.
No financial returns are guaranteed, but being able to hold assets for the longer-term that are average or better than average will forgive a lot of sins. The ability to hold property is largely determined by your long-term planning, setting money goals and managing risk. The asset selection plays a relatively small part if you do not have the ‘non-property asset’ related aspects in place. To find out more about making great long-term property, financial and lifestyle decisions, listen to Episode 4 of our Podcast – ‘how to develop your property plan.”