Why you should put off buying your dream home
We know you’ve read it for a while now, but market conditions seem to really be tipping in buyers’ favour. What’s more, as a buyer you are now more likely than ever before to have a wider selection of properties available, with the only limit being your own circumstance and budget.
The result is that you will probably soon be asking yourself if you should take the plunge now and buy a starter home, or wait a couple of years until your circumstance allow you to buy your dream forever-home.
Your affordability and need
“While all buyers would rather opt to purchase their dream home straight away, the large majority of first-time buyers are not in a financial position to do so,” explains Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa. “A few decades ago one income purchased a respectable home, however in today’s market two professional incomes still may not be enough to comfortably afford a home in some of the more expensive areas.”
Your ability to build up equity
Once a buyer has a foot in the property market it is easier to climb the proverbial ladder. You will have an appreciating asset that you can sell to upgrade to your forever-home or consider renting out your starter home as a passive income generator.
Weigh up long-term needs versus the here and now
“Purchasing property is rightly viewed as a long-term decision,” says Goslett. “There may be features buyers want but don’t need at the moment however, such as an extra bedroom or large garden. It would make sense to rather save money and compromise on unnecessary features.”
Buying a property without the features you don’t need right now will significantly lower your bond repayment and upkeep expenses. This will give you the option of saving money for your future dream home, and affording the monthly bond repayments more comfortably when the time comes.
Gain experience, and wealth
Waiting to purchase your forever home will give you the time to gather knowledge and an educated opinion on the features you need in your long-term house. “Living in a starter home gives the buyer a chance to assess what features they want in their dream home and what they don’t, as well as get a handle on the different responsibilities and expenses that accompany homeownership,” explains Goslett.
The added benefit of waiting and living in a starter home for five to seven years, is the chance to build up your income and affordability ratio, affording you a higher bond repayment and bigger property when you outgrow your current starter home.
If you opt to stay out of the property market until you can afford your forever home, it is important that you carefully consider the rental you will be paying. You need to rent a property that is reasonably priced, enabling you to save for a sizeable deposit when you are ready to purchase your dream home.
According to Goslett an advantage of waiting is avoiding the chance of being stuck with a property in a bad time to sell and being unable to move up. A disadvantage of waiting is home prices will continue to increase, so something that is not affordable now might be potentially less affordable in the future.
Goslett offers four expert tips to make possibly the biggest purchase of your life as financially responsible as possible:
#1: “Start where you can and build up.” The property might not be your dream home, but will get you started in the property market.
#2: “Have money saved up for expenses.” It’s prudent to have about 5% of the value of your home saved up for other expenses such as maintenance or renovations.
#3: “Pay more to reduce your bond term.” It’s crazy to think that an additional payment of as little as R300 can reduce a 20-year bond on R500,000 by almost four years! If you are able to pay extra each month you will also significantly reduce the amount of interest paid over the term of the bond.
#4: “Be prepared for the unexpected.” You need to ensure that you are financially prepared for possible future scenarios such as an interest rate hike that could potentially threaten your financial stability and security.
Considering the fact that property values are likely to continue to increase, putting your dream home further out of your reach as you wait for a higher income or to save up money, getting a foot into the property market is definitely a viable option worth your consideration. As Goslett says, “Buyers can still enjoy the benefits of owning their own home and having their foot in the door without over-committing themselves financially and compromising their financial well-being in the future.”