February 15, 2021 The ultimate guide to upgrading to your dream home
Buying a home? Here’s everything you need to know in one place.
This article is for anyone looking to buy a home. If you’re frustrated with going it alone and researching everything yourself, this article can help you.
Buying a home for the first time can be tricky.
I get it.
Everyone on the Internet has an opinion.
Which is great in one sense because there’s a wealth of information and advice out there. But it also means you’ve got to have the time to wade through it all.
Even then, it can be hard to work out what advice you should take onboard and which advice you shouldn’t.
So, where’s the housing market headed right now?
It’s hard to predict just where the housing market is going to go.
No one has a crystal ball.
Let’s face it – no one truly knows.
Forgetting the media’s near-constant predictions, the housing market is still a very strong area to invest – whether that’s buying a home to live in or as an investment property.
It’s all about the strategy that goes along with buying a home that ultimately dictates whether or not you should invest in the housing market.
Personally, I get the feeling we’re in for a really good 2020 in Melbourne.
The city’s population is still booming and there’s a shortage of homes – it’s the classic scenario of supply versus demand.
We’re also starting to see some really competitive interest rates coming out from different lenders, and all the signs are there that interest rates may go even lower.
“If you are currently looking at buying a home, there are a few pros and cons of engaging a financial advisor versus going it alone.”
Particularly with the market seemingly on the rebound.
If you have the time, do all the research and access to sound advice from friends and family who’ve been successful with buying property and have their finger on the pulse, great.
If you don’t, there’s a lot of merit in seeking out expert advice.
Sure, you’ll need to pay for an adviser’s time, but you can typically expect a better result – and within a shorter period of time than going DIY.
And I’m not just saying that because I am one.
If you do decide to engage someone, my number one piece of advice would be to make sure you’re actually paying for their advice and that they don’t have any conflicts of interest.
Should you decide to go it alone, your best bet is to try to buy the best grade of property you possibly can. That depends on your deposit’s size, if you have the cashflow (right now and looking further down the road) and how much lenders are willing to lend you.
When it comes to buying a home, there are a few burning questions I consistently get asked week in, week out. So much so that, today, I thought I’d share a bit of insight and answer these for anyone looking to buy a home…
1. Should I renovate?
I get asked this one a lot!
More often than not, renovating your home tends to be cheaper than selling, buying and then moving into a new home.
If you’ve been in your home for a long time, you’ll know exactly what you need to do to change it and get it pretty well near bang on to meeting your needs.
You’ll also likely feel part of the local community, and there’s a lot of value you can place in that.
“The big plus of renovating is that you’re not going to get hit with stamp duty and selling costs.”
Let’s say you sell your home for $1 million and upgrade to a $1.5 million home. It’s going to end up costing you $100K+ to make that transaction.
Consider that for a moment. Again, that’s a lot of money.
Unless you’re pressed for space (say, you’re planning on starting a family in the near future) or you want to upgrade your home or the area you live in, I’d argue that putting $100-$200K into renovating your current home instead is probably a better bet.
In other words, if your home and location are already meeting a lot of your current and future needs, renovating your home makes absolute sense – it will likely be cheaper, less hassle and you’ll likely get closer to your dream home.
The big thing to consider here, though, is that renovating your home takes time.
Expect renovating your home to take anywhere from 6 months to a year, whereas if you just sold and bought somewhere else would likely be quicker.
The one thing renovating doesn’t let you do is upgrade your location.
People tend to want to live close to good schools, good public transport options and family (grandparents, for instance).
If your current home doesn’t tick all these boxes, renovating doesn’t allow you to do that.
2. Should I buy and sell?
Back to renovating your home for a second, if you’re a busy family with children, going through the process of renovating can add a lot of pressure and stress.
It can get very complicated and throw up lots of issues.
Sometimes it’s just simpler and easier to sell. Which, ironically, can also actually be a lot quicker in many ways.
There’s no going back and forth with architects, navigating the complexities of planning and dealing with your local council, or choosing the right colour paint and type of carpet – all that sort of stuff.
Although it costs more because there are few expenses involved – selling and moving has a number of fees attached to the process – you can often get what we call a ‘turnkey’ home.
“You can see what your new home looks like and you can experience it before you move in.”
The other thing we see a lot of is that you get to pick the suburb you’d prefer to live in versus the suburb you currently live in, which, for most people, is a big one.
I’m talking about moving closer to better school zones, moving closer to family, moving closer to work to cut down your commute and whatnot.
And there’s a lot to be said for all that.
Ultimately, it’s about improving your life, so selling and moving to an area that solves those problems can often be a great thing.
3. Should I knock down and rebuild?
This is really common. We see it heaps.
If you go through a company that’s a volume builder and does it regularly, knocking down your home and rebuilding can actually be quite cheap.
Better still, it can give you the opportunity to hit the reset button and start again with a blank canvas.
What I mean by that is that you don’t have to do a custom renovation and get architects to bolt something new onto your existing home that’s, say, been on your block for the past 100 years.
“You get to start afresh, which, for most people, can be a good thing.”
There are risks with knocking down and rebuilding, obviously.
There could be issues with the soil and other elements related to your existing property, for instance.
However, it can be cheaper per square metre to knock down and rebuild than to renovate, particularly if you buy ‘off the shelf’ through the likes of, say, Metricon.
And obviously, there are no stamp duty and selling fees because you already own the land.
All in all, depending on your circumstances and what you want to achieve in life over the next 10-15 years, knocking down your home and rebuilding can be a really good option.
4. Should I buy a property that’s ready to roll or a fixer-upper?
When it comes to buying a home to actually live in, buying a home that’s already done and up to scratch – depending on your taste and needs, obviously – is an excellent option because you can move in turnkey and, better still, you’ve seen it all already.
So, in theory, you’ll already love it. However, you do pay for that privilege.
“Buying a fixer-upper allows you to add your own touch, your own feel, your own colours and, often, it can be quite a bit cheaper.”
If you’re buying a property as an investment, you don’t have a lot of time to do major renovations, which is something you really need to keep in mind.
As an investment property, you really want to start renting it out ASAP.
You don’t have a lot of time to do big renovations or any internal improvements because you want to get tenants in as quickly as you can – I’d argue within two weeks, in fact.
In other words, you effectively want to buy something that’s pretty well what you’re after as an investment property, as you don’t want to be in a position where you have to do too many renovations.
5. How much should I spend?
Ah, yes, the million-dollar question.
We work with people all the time on how much they should spend on property and, to truly answer that question, you have to have a bit of a view of what’s going to happen in the future.
Now, we don’t have a crystal ball, I get that.
“You have to start forming a clear view in your mind of what you’re working towards and how you see your life playing out over the next decade.”
By that, I mean, are you looking at buying one house to live in for the rest of your life and never buying again?
Are you thinking about buying one house to live in and then looking at buying an investment property down the track?
Are you buying multiple investment properties and not buying a home to live in?
So many questions, I know. Forgive me.
But that’s because we need to work out where your property purchase fits within an overall strategy that helps you live the life you want to live.
6. How much can I afford?
As a general rule of thumb, you don’t want to put yourself under financial hardship by taking on a mortgage that you can’t afford.
“In other words, if you can’t save $4,000 a month today, it’s unrealistic to think that you can pay off $4,000 a month mortgage.”
Here, you really have to look at your spending habits and behaviours around money and determine how much you can afford to spend on a home on a monthly basis.
Simply put, you’ve got to follow realistic patterns in what you do in your life.
The amount you can afford is based on where you are today, but it’s super important to work out where you’re heading and where you want to go.
Let’s say you have a young family, one of you isn’t working in order to look after the kids, so money’s tight, but you know that situation will change in the next year or two because the kids are going to be starting school and your partner will be returning to working in some way shape or form.
Right now, you mightn’t feel like you can afford your dream home.
However, it may actually make more sense to buy your dream home today and knuckle down for the next year or so, given that you’ll likely be able to comfortably pay off your mortgage once your partner starts working again.
What do I mean by that? By the time you get yourselves into the ‘right’ position to buy, the ship for that level of house in that area may have sailed. I see it all the time.
Lastly, perhaps the biggest thing people overlook is how the banks will view your financial situation. This ultimately determines what you’re able to actually borrow and, in turn, what price range you can purchase a home within.
7. Should I rentvest or buy to live in?
The main benefit of rentvesting is that you get to live where you want to live while getting into the housing market at the same time.
Right now, the good news is that all things considered, rent’s actually not that expensive.
Rentvesting can be great when you can’t afford to buy in the area you actually want to live in.
The other big bonus of rentvesting is that your access to growth investments can be significantly higher. And there’s the added advantage of being able to negative gear your investment property.
“The general rule is when you’re renting, you’re in a much better position to buy a high-value property.”
I’ll give you an example…
Let’s say your rent isn’t overly expensive. If you can afford to purchase an $800K home, you’re likely to be able to buy investment properties that are worth $1M-plus because the rent counts as income when you are looking to borrow money from the banks.
With rentvesting, you’ll typically have access to more growth assets, and over a long period of time with compounding returns, you’re effectively going to see a better return.
In saying that, there are a number of benefits to buying a home to live in.
I’m talking lifestyle, you get to live in the house, you can change whatever you want. The other one is the capital-gains tax.
If you own a home that you’ve lived in and never rent it out, then you’ll pay zero capital gains tax when you sell in five or 10 years, which can be a significant amount of money.
On the other hand, if you buy investment properties, if and when you sell them, you’ll definitely pay capital gains tax.
So the key difference is this…
With rentvesting, you may hold a higher value of assets, on paper, but you may actually not be making as much by way of your after-tax profit (due to capital-gains obligations) as you are when you buy a home to live in.
With buying a home to live in, there’s obviously the benefits of improving your lifestyle and having the memories you create with your family.
It’s a lot to take in, I know.
Whichever way you go, you need to clear plan both before you buy a home and after you purchase it.
On that note, I’d like to share one last thing. Let’s look at a quick overview of what a clear plan looks like.
Whether you decide to go it alone or engage an expert, here are the key things you need to tick off along the way and in chronological order…
What your plan should include…
Prior to purchase
1. You need to answer these two key questions:
How much can I afford?
How much should I spend?
2. Determine the best strategy: buy and renovate, knockdown and rebuild, sell buy (see above).
3. Start managing your money like you’ve already bought your home.
Let’s say, hypothetically, your monthly mortgage payments will be $2,000. Then, start putting away $2,000 each and every month.
4. Work out a pre-purchase action plan that answers the following questions:
How are you going to acquire your deposit?
How you’re going to save more?
Can you release any equity you already have?
5. Get pre-approval from the bank.
6. Build your property purchase team. We’re talking lawyers, advisers and the like.
7. Start preparing settlement for the property, including confirming that you have the right loan.
8. Schedule the money to go from your bank to where the seller has stipulated as part of the settlement.
9. Set up your repayments, online banking, update your direct debits, make sure you’re getting the most out of your offset account
10. Work out a debt-reduction strategy over the long term to help you pay off your home sooner.
Disclaimer: All information contained within this article is of a general nature. It does not take into consideration your personal financial circumstances. Please consult a professional financial adviser (just like us ) when making a financial decision.