Why the family home is often the biggest piece of the investment puzzle (Ep.22)

We all have a picture in our heads of what our ideal home looks like.  

For most of us, chasing our ideal home can be akin to chasing a unicorn. Unless you have a bottomless pocket, compromises will need to be made (particularly if you’re a first home buyer). 

In episode 22, we dissect “Why the family home is commonly the biggest piece of the investment puzzle. 

Listen as David Johnston, Cate Bakos and Peter Koulizos take you through why you should treat your home as your greatest investment, the compromises you should plan for and the critical mistakes to avoid!  

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Show notes

  • View your home as an investment – often the home is neglected in investment strategies. Which seems illogical given that it is probably the most expensive thing you will ever buy and the most important.  
  • Your home buying pathway should be as diligently mapped out as your investment pathway – after all, the two interact and impact each other. Unless you are fortunate enough to be able to purchase two properties at once, and one of them being your dream home no less! 
  • For the rest of us, a common problem we face is the lifestyle v investment conundrum – will your next purchase be a home or investment? 
  • A look at the stats – a large chunk of people retire only owning a home. This is a decision you want to get right. If you do, it can create a lot of wealth. The home is exempt from capital gains tax, exempt from means testing in pension eligibility and there are incentives to contribute funds to super after downsizing. Not to mention, you can downsize to fund your retirement if you have built up equity.  
  • If you don’t get it right, it can be a killer of your wealth if you need to buy and sell.  
  • The Holy Grail – owning 1 home over your lifetime. The average is 2-3 properties and once you go beyond 3, you are chewing up costs.  
  • Getting the big rocks in the jar – planning for your future home, then focus on the investment. 
  • Eroding your nest egg: investing is a numbers game, but you need to feel emotionally good about a home. Make sure you tick the boxes, the longer you are able to hold it, the less slipage in your profit due to stamp duty and fees.  
  • The 4 facets of purchasing a home – or should we say, the 4 compromises? 
  • 1 Price – this will dictate considerations around the location and the dwelling. What we often see is people come into the market thinking they will pay a certain price for a home and often that gets extended. If you’re not clear on the price and how this affects the dwelling and location, you can waste a lot of time learning what you can afford – get clear at the beginning of the search. 
  • The property unicorn – reality check the perfect home for the price you want, does not exist. What you need to spend time on is getting your budget and wish list aligned, the sooner you can do that, the sooner you can act! 
  • Don’t be afraid to pay market value for a great asset – buying something on the cheap will do you a disservice. Paying a lower price for a bag of bad apples, still leaves you with a bag of bad apples.  
  • The needle in the haystack – what emotional premium are you willing to pay to purchase your family home? Being able to find a property that ticks your lifestyle boxes (and probably someone else’s lifestyle boxes) may mean that you need to stretch to secure it. What extra mayo are you willing to throw in? 
  • 2 Location – ask yourself the simple question, where is your life? Most people know where they would prefer to live. Whether the driver is to be close to parents, your work, the CBD and the list goes on!   
  • Get your priorities straight! Sit down with your partner and determine what aspects of a location are MOST important to you – is it access to public transport, schools, the CBD, your parents, the outdoors, sport and recreation. Knowing in advance what is most important to you will help you make quicker decisions and get on the same page.  
  • Life stage – your priorities may change during your life time. For first time buyer’s pre-children looking at purchasing a stepping stone home, you may prioritise access to the CBD, for work and socialising. After kids, things like schools and being close to family (aka baby sitters) comes up the priority list.  
  • The first cab off the rank – we find that most people are willing to compromise on the dwelling to get into their desired location.  
  • 3 Land – the land size is a critical component to any purchase. A family home normally does not earn you any yield (unless you have started charging your 25yearold who won’t leave home some rent). But it is critical to building wealth in terms of capital gains – your nest egg. 
  • Drivers for wanting a big block of land – the idyllic notion of kids running around in the backyard, the possibility of a future subdivision and selling a more valuable asset.  
  • Let’s come back down to reality for a moment – if location is also your priority and that location happens to be in the inner ring, an enormous land size will equate to an equally enormous budget.  
  • Think about that backyard – entertainment has moved indoors (thanks largely to the internet and video games). Plus, your backyard can be outsourced – getting into a good location with access to parks, gyms and sports may trump your need to get onto a big property. In the end, it’s about what you prioritise for you and your family.  
  • 4 Dwelling – we all want to buy a property that is perfect to live in from day one. The reality is that in order to achieve that, you would more than likely need to stretch the budget or move further out.  
  • Remember, you can always change the dwelling, but you cannot change the location. A compromise on the dwelling you purchase may just be the thing to get you into the location you love.  
  • Buy something you can grow into – through renovations and extensions. This might mean going for something a bit daggier, giving up the ensuite or potentially an extra bedroom.  
  • Don’t jump the gun! Wait before you do your extensions, your designs, needs and ideas can change over time.  
  • Common mistakes – when you don’t plan! 
    • Falling in love without having a plan – so youre struck by a property that you want to buy, BUT it doesn’t tick your boxes. You may end up with something beautiful, that just doesn’t work.  
    • The knee jerk buy – have you ever seen someone going out for their weekend walk with the dog and bid on a property? We have! This is rarely a good option. 
    • Over thinking the future – it would be great to purchase a home that will align to your desired lifestyle for 10, 15, 20 years. But not everyone’s future is surrounded by that much certainty. Not taking action could be just as detrimental as purchasing the wrong property.  
    • Commitment phobia – talking yourself out of a property, that you then regret. 
    • Being on a different page to your partner – you may disagree on your priorities and compromises, but purchasing a home that one partner is unhappy with could end up costing you.  

David Johnston – The Property Planner’s Golden nugget: Get clear on your timeline for you next home! Is it your next move or will you make an investment decision beforehand? Getting clarity on when you plan to buy a home ensures that the other decisions you make between now and then will not be detrimental to the future home or help you decide that actually the home should be your next purchase. 

Cate Bakos – The Property Buyer’s Golden nugget: Unicorns don’t exist! You won’t get 100% of what you are looking for, so prepare to compromise. Whether you get the thunderbolt when you’re searching for property, be pragmatic about the purchase and make sure all of your ‘must haves’ have been addressed. 

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