Buying a home is a big deal, and with the current market being exceptionally hot due to investors snapping up things left, right and centre, it is easy to see how buyers are getting despondent and feeling like they will never have a chance of buying anything. If you want to buy a home within the next five years, you need to start your planning now and put some basic rules in to practise. This is what you need to do:
1. Analyse where your money goes.
For the past month, print out a bank statement and see where your money has gone. If you’ve withdrawn cash for purchases, put a definition of where that has been spent. If you have used a card, match up what you spent and where it went. Then, get a highlighter and start highlighting the following items.
- Necessary expenses: Electricity, Gas, Hot Water, Rent, Supermarket shopping etc in Red
- Semi-necessary expenses: Petrol, Public transport, home utilities in Yellow
- Choice expenditures: Lunches, Dinners and entertainment that you have chosen to do in Blue
- Luxury expenditures: Holidays, gifts, new items that aren’t essential in Green
Once you have done this, see what colour your bank statement is. You want it to be predominantly green, because then just making a few small amendments will start putting more dollars in your pockets.
2. Define what you NEED to buy, that makes ECONOMICAL sense.
Start by deciding what kind of property you are going to buy. Are you buying an investment property, and using the rental income to help pay rent in a position you want to live? Or are you looking at something to buy that will be lived in by yourself? If you want to buy an investment property, go and explore the area and pick 10 of the streets you like. People get carried away with the whole suburb being a growth area, but there are always better parts than others.
Ask yourself who would live here and if it would require money spent. Then engage a couple of agents and explain what it is you want to invest in and your FIRM budget. You need to know exactly how much you can spend, or you can waste a huge amount of time looking at homes you will never buy. In the mean time, try and negotiate a long term lease to keep the rent down.
Discuss what you need before discussing what you want.
3. Start living like you have the mortgage:
The best thing you can do when you don’t have a mortgage is live like you have one. Put away each month the amount you would need to be contributing if you owned the home, on top of your current rent. This will help you either prepay interest, bringing down the loan, OR be in a really solid financial position when it comes to buying. Keep doing this until you buy, and then pay down your deposit, and look at what loan is best. With loans relatively cheap now, it may be worth locking in a long term loan to help give you security and to know how much you can spend each week.
4. Get your lifestyle checklist sorted:
A huge issue people have when it comes to buying property is matching it to their lifestyle. A lot of people when buying a home want to travel, go out, buy lots of nice things, and they have a hard time adjusting to the new lifestyle required to fund a mortgage. Before you buy a home, get the main assets that take a lot of financial commitment out of the way. Ensure your car works, and you have all other major assets you may want like a bike, TV etc. There is no point buying a home and having nothing to put in it and feeling like you can’t live properly there. Once you know you can move in and comfortably furnish the property, then go to the next steps.
Sometimes the luxuries need to go when you want to buy a home.
5. Tell your agent.
The person who can do a lot of the research and assist you when it comes to finding the perfect property is your local agent. Explain your financial situation and the level you can comfortably go to, and where is a no- go zone. Explain that you need to buy something that makes financial sense, and the lifestyle you currently have. Once the agent knows this, ask them to send you over updated listings and check in every month to see if they have anything new.
Buying a home is a huge decision. Making sure you are well prepared is essential so you don’t feel overwhelmed when you bite the bullet. Do your research to ensure you known what you can comfortably afford, and make sure that it sits high in the priority list of purchases. Every time you think about buying an asset that won’t contribute to your home, ask if you really need it and what is most important.