Property has been in the news a lot lately, with ever increasing interest rates, and this off the back of record growth in last two years. Rental properties are even harder to find so property is a hot topic at the moment. Simply buying property if thought about in basic terms, is a long term strategy, so buying in an up market or a down market, should even itself out over time, as long as you buy the right property. Especially if looking at it from an investment point of view and receiving strong rental income at the moment.
For my top 6 tips check out my previous article from last year – Buying property in 2022.
The problem for me is that property is done badly in more cases than not and so thought I would provide some thoughts on why this is the case in many of those times.
Firstly FOMO (Fear Of Missing Out). I saw a lot of buyers in the last 18 months buy way over the true market price just because they thought they needed to get in as everyone else was. Whether its shares or property, when everyone else is buying, a great tip is keeping your hands in your pocket and just wait. Bargains come when everyone else is fearful, not when everyone is being greedy.
Everyone thinking Interest rates were going to stay low, even the Reserve Bank Governor said so. It’s true, interest rates have been incredibly low for a long period of time now, but like all things, interest rates were always going to come back up at some point. Historically mortgage rates are around 5 to 6% pa and people should never buy at 3% if that is their maximum loan capacity, thinking they will stay that way. Unfortunately, a lot of people did and especially those who locked in to fixed terms, those rates are going to stop soon and some will see their repayments double. Always see 5% as average and make sure you can cover 2 or 3% more, regardless of what the actual rates are at.
Another mistake I see a lot of is that you only buy where you live now. Yes you may have grown up in an area and want to stay there, but for many it is too expensive now and so going into too much debt is a real problem. Preferably they should lower their expectations and buy within their budget. What I am seeing a lot of is rentvesting as another option, so they live where they want with renting but still buy a property to rent out as a growing investment.
A mistake I see is that many see their house as a property just to live in whereas after a few years and you have built up equity in your home, this has the opportunity to become such a good help in buying your next property. As owning your home is great but it doesn’t provide an income and the whole point of reaching financial freedom is building multiple income streams. Use your home for the deposit and then let someone else pay off this new property for you. Your future self will be glad you did.
One final point and the biggest mistake I see when buying property, is that people want to do this all on their own. The endless weekends attending auctions or open houses and seeing other people buy ahead of them. We would never think of putting in a pool by ourselves, as we would get a specialist, but when it comes to buying a property that is probably 50 to 100 times the cost of that pool we feel we can do all that on our own. Using property advocates who do all the research to find the best performing suburbs and properties, and access information we could only dream of, to me is a necessity not a luxury. As make a mistake with your new property and it could end up costing you tens of thousands easily. Also the other expert you should have in your corner is a mortgage broker, as most go to a bank for their loan. They can see all the loans whereas your bank can only use their own loan. They also want to build a long-term relationship with you as a small business owner, whereas a bank loan officer will probably have moved on by next time you want an appt and they give more loyalty to a new customer than an existing one.
Best of luck with your new property purchase and don’t forget look out for one of our next workshops as we talk about property extensively and also bring in other property experts as well.
Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich