4 Questions to ask yourself before buying property

Buying real estate is a significant financial commitment for most, it’s a exciting decision that can easily turn into a nightmare if an unforeseen event takes place after you have settled.

Buyers work and save hard to fund their property purchase, it comes to represent far more than 4 walls and a roof. Securing the right home can provide years of enjoyment, comfort and be the source of your future wealth.

With many buyers currently rushing into the property market due to FOMO, there is a possibility, they’ll experience some level of buyer’s remorse if life goes sideways unexpectedly.

To avoid buyer’s remorse, buyers should ask themselves questions below before buying property. As answering these four questions pre-purchase will help reduce decision anxiety later.

If interest rate rises, can we afford repayments?

Interest probably won’t rise in the short term. But what if they did? It’s crucial that you recognise we are at historically-low interest rates. And yes, they may go lower before they go higher.

Given the average time of property ownership is seven years, it’s fair to expect we will see higher rates at some time in the next seven years. If you budget for higher interest rates that never come, you are well in front.

If you budget for a continuation of record-low rates and you get hit with rate increases, the dream home can quickly become the nightmare mortgage.

If your finances don’t stack up to well when modelled on rate rises, maybe you could consider buying at a more sustainable price point. Fixing your rates at current levels is another strategy to help protect against higher rates in the short term.

Will the property hold value when market corrects?

We are currently in boom conditions, therefore its probable that we will see a correction at some stage. The market may rise further before it corrects, but all markets that shoot up inevitably experience a correction, whether it’s mild or severe.

Note that correction is different to crash. Corrections happen with regularity in the property market, where as crashes are catastrophic events such as the US sub-prime crisis. Never believe someone that claims Sydney real estate never goes down.

It does and has frequently done so in recent times. Sydney real estate has a terrific history of performing well over the mid to long term. The real estate market is more volatile than most people realise.

Knowing market value and paying above market value is fine, so long as you are conscious of the decision you are making. Many people happily pay above fundamental market value each week to secure their dream home. They know that they will make it up in the long run in any case.

Once you have consciously established market price, then you decide what you will offer in relation to it. Some buyers will only buy a property if they feel that they are getting it at or below market price.

Questioning whether you did or didn’t overpay as you show family and friends around at the house warming will only end in buyer’s remorse.

If you are buying a quality piece of real estate for the long term, you will more than likely come out in front.

How secure is my job or income source?

Fortunately, we are experiencing very low unemployment at present. However, do you have a plan if you do lose your job?

Sure, you may get another job, maybe a better paying one. What if you can only get a lower paying job though?

These are very confronting questions, but they are best confronted upfront otherwise they can haunt your personal finances.

Young couples who purchase can easily fall for one of two common errors. Firstly, they expect to receive pay rises in years to come. Secondly, they don’t anticipate/budget that having children may take one income out of the equation.

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Will the rent cover the mortgage?

Home ownership is about security and being mortgage free prior to retiring is the ultimate security. The reality, with today’s property prices and the size of mortgage required to secure a property, not everyone will achieve this security.

There is an interim financially secure level that everyone should aspire to and one that can be attained.

Getting to the point where the rental value of the property covers the mortgage will offer surprising comfort. Knowing that the property can service its debt means that you will never have to sell and meet the market conditions of the day.

If living in the property becomes unaffordable due to change of circumstance etc. you can decide to sell or rent. The key words being: ‘you can decide’.

Ask the questions above before your purchase, and on settlement, enjoy your new home.

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This article does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.