The First Home TRAP!
Why buying your first home might be the last home you buy.
"Oh, congratulations!" they say.
"What a beautiful home" they say.
"Well done" they say.
"Let's talk about budgets and savings plans" they don't say.
"It's not just the loan repayment, it's the rates, the insurance and the maintenance costs" they don't say.
"I'll pay for you to join us on holidays" they don't say.
Fortunately, I've purchased a couple of different properties in my 33 years and learned a LOT of lessons from every transaction. For example; buying a block of land provides no tax benefits until you build on it. Buying a house with two bedrooms reduces the market of interested buyers; and my favourite lesson - debt isn't fun!
Buying a house is a huge social expectation from years gone by. The Traditional Life: Grow up, get an education, get a job, get married, buy a house, have kids, grow old.
Sounds lovely in a very traditional sense, but what they don't mention is how much an education costs, weddings aren't cheap by design and then you need the savings to put down a deposit? THEN have children?
P.S. I'm of the belief children aren't exactly 'cash flow friendly' either.
So what is the First Home Trap? The trap comes in the serviceability of life. Serviceability is the term used to define your ability to pay (aka service) a loan amount. The higher your serviceability, the more you can borrow. The problem is not whether you can borrow money - it's whether you can repay it quickly AND still live a full life. When I say quickly, I mean paying off a house in 10-15 years, so it's not actually quick at all!
Your first house should not be a homage to your ego. A house is not a status symbol. Everyone celebrates when someone buys a house. Isn't this the wrong time to be celebrating? We're really celebrating loading up on huge levels of debt! Shouldn't we celebrate paying off the loan? That is when you actually own your house.
So don't fall for the First Home Trap - make your first purchase a smart and intelligent purchase. There are plenty of options to consider:
- The First Home Owners Grant has been continued until 31 December 2017 and still only applies to new construction but....
- The First Home Buyers Stamp Duty Rebate still applies for buying an existing home when the value of the property is less than $550,000. This is a great saving and something to seriously consider because purchasing an existing house has some huge features. (See below)
- The First Home Super Saver Scheme kicks in, allowing first homebuyers to funnel up to $30,000 into their superannuation account at a lower tax rate.
- Personally, my wife and I purchased a unit that has nice facilities and in a great location so we can spend our weekends with friends and family (not mowing grass, watering the yard...)
- An older property will require some upkeep and maintenance but the block will generally be larger (more room for activities) and the location may be more central.
- Many new housing developments have smaller blocks, meaning a small house with a simple yard but on the plus side, everything is shiny and new.
Remember to think about your future plans. You don't need a four bedroom + theatre room castle. Your first home can become a fantastic investment property for when you actually need to upsize (as long as you have structured your loans and accounts correctly).
So don't fall for the First Home Trap. Think long term. Purchasing property is a HUGE deal. Remember to consider the financial ramifications of your decision, not just the Facebook pictures.
(Originally published DUO Magazine August 2017)