Why price point should determine location and strategy (Ep.21)

Ever tried to run a race backwards? Reaching your goals is just as hard when you are working back to front.  

We see plenty of purchasers let a bank tell them their price point based on a maximum borrowing capacity and then purchase next door to where they live. This is the investing equivalent of doing a three-legged race with your partner. Blindfolded.  

Set yourself goals, that will determine the appropriate price point. Then work out the best location to purchase from there.  

In episode 21, we dissect “Why price point should determine location and strategy”  

Listen as David Johnston, Cate Bakos and Peter Koulizos take you through how to get at your true price point, the compromises you need to make peace with and the critical mistakes to avoid.  

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Show notes

  • Always start with Step 1: Plan – what are your short to long term goals? 
  • Unpacking the dominos to get clear on your price point:  
    • Cash flow 
    • Living expenses 
    • Money concerns 
    • Risk profile 
    • Overall financial circumstances 
  • Money goals – have you decided what you would like your surplus cash flow and available funds buffer to be after you purchase? 
  • Be flexible – there may be a particular side of town or pocket that you want to live in, however it doesn’t mean that you always get what you want.  
  • Don’t stroll too far down the garden path – looking at listings and advertised price ranges is a great way to get disappointed. A more effective approach is to look at the sold prices. Comparable sales – what is the going price tag for the dwelling type you are after in the suburb you want? 
  • Compromise, that ugly word – if you find that you are missing out on the properties you love, it may be time to compromise. Before you begin the house hunt, determine what you could compromise on in advance.  
    • Price – perhaps you have to pay more than what you initially thought. Most people do not have this option open to them. 
    • Purchase an older dwelling. 
    • Purchase a smaller dwelling. 
    • Location.  
  • Spend some time in the suburb you are interested in, can you see yourself living there? 
  • Time to make a list – your must haves v your nice to haves. 
  • If your strategy is to purchase a stepping stone home that you will later sell, purchase wisely. You want to make sure that you can get sufficient growth to be able to leap frog into your next property.  
  • Consider rent-vesting – purchasing an investment and renting in your preferred location may be the way to go rather than purchasing a stepping stone home that you then have to sell.  
  • If rent-vesting could be an option for you, consider the pros and cons.   
  • Each time you buy and sell property, it eats into your wealth. The fewer property transactions you can have to reach your goal, the better! 
  • The Holy Grail – owning 1 home. For most of us, the average homes we will own is 3. A huge killer of wealth, unless you have been able to hold them all.  
  • Check your ego at the door – home buying can be like purchasing a car, what is the cheapest car your ego will allow you to drive? 
  • Remember, you may compromise on your home to begin with, but that can always be changed down the track with some extensions and renovations.  
  • Don’t reveal your budget to the agent – tell them what kind of property you are after.  
  • Have you set your goals for the property? Capital growth or cash flow focused? 
  • It’s hard to get ahead when you’re working back to front. Often times we see people get a borrowing capacity from the bank to determine their price point and purchase next door to where they live. Start with your money goals to determine your price points and let that dictate the location.  
  • If your desired suburb is out of budget, but you find a property that does fit within, it is probably a compromised asset and could be doing you a disservice by purchasing. Just because the property next door to a gas station is affordable, doesn’t mean it’s a good purchase.  
  • Buy a bargain and you’ll sell a bargain. It’s that simple.  
  • OK, you think you know your price point, but what is your true price point? Most people end up paying 10% above the price point they were talking about to begin with. The earlier you get to your true price range can save yourself a lot of headache.  

David Johnston – The Property Planner’s Golden nugget: Price point comes first! One of the key reasons why getting so clear on your price point in advance of determining location and strategy, is that this will give you the comfort to buy. Take the extra time to ensure that your price range fits within your money goals and suits your broader property and lifestyle goals. It then allows you to buy with confidence. 

Cate Bakos – The Property Buyer’s Golden nugget: When people are working out where they want to live, you’re buying a home and want to know if your search plan is feasible. The quickest and most effective way to go about this, and you can stay in your living room as well, is to get on to a search engine, go to the sold tab, study the prices in the area of interest and dwelling types you’re interested in, look at past sales for last 3 months. There is nothing better than timely data!

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