Your home is your safe haven: Could COVID-19 encourage mo...

Your home is your safe haven: Could COVID-19 encourage more renters to purchase property?

Melvie April 18, 2020

OPINION:

Now more than ever we will evaluate what is really important to us. Amongst the chaos and uncertainty, how can we work towards a secure future? What is the right secure future for us?

There is something very secure about a good old fashioned brick and mortar investment.

During difficult times it is comforting to return to a home you own. A safe place where you can cultivate your lifestyle and personality in the way that you choose. Hang those precious memories, paint or wallpaper the walls – or not, it doesn’t matter, you can create your own style, your own sanctuary, your own safe haven.

Owning your own home fulfils fundamental needs as outlined in Maslow’s “Hierarchy of Needs” and for many, their home is a status symbol or a financial vehicle in which to grow wealth and success.

Driven by these fundamental human needs it is vital that we have a practical and financially viable plan to obtain these goals.

How do I know I’m making the right decision to go from renter to owner?

Research, then apply practical financially viable solutions. If you can afford to pay rent, chances are you can afford to pay a mortgage. Run the numbers. Get good financial advice, speak to a financial planner, an accountant, a bank manager and make a plan for the future. Know what your commitment will cost not just mortgage payments but include stamp duty, rates, insurance and body corporate fees.

The Reserve Bank Australia (RBA) predicts a shortfall in housing (Financial Review, 2019). With record low-interest rates, record first home buyers, population growth, high immigration* (COVID-19 restrictions will not last forever) and increased renters the data indicates that if you have a secure income that you should consider the following tips and purchase once this immediate unsettling time has passed. Yes, we are experiencing a pandemic with a recession looming but our economy is cyclic.

Buying a medium to long term investment

Over the past 30 years, Australian housing prices have increased on average by 7.25 % per year (RBA, 2015). Statistics historically tell us that provided you are buying a property as a medium or long term investment where you can choose your time to sell you will not lose. If you are buying a short term prospect you need to do more to ensure a return on investment, such as the following;

* Australia’s population continues to grow and 231,937 people migrated from overseas in 2019 (Australian Bureau of Statistics, 2019).All these people need homes.

Buying like a pro

Negotiate.
Purchase below market value.
Take advantage of stamp duty savings and other government grants.
Build relationships with real estate agents and experts to find off-market opportunities and distressed sales. Consider if a buyers advocate would be beneficial in your situation.
Ask for both a property and a council valuation and determine the price per square metre in that suburb for that type of property, for example, new or renovated apartment price per square metre or renovated or un-renovated house price or land value per square metre.
If buying off the plan or a new build ensure that you are purchasing a high-quality build from a reputable developer.

Do your research

Purchase through the lens of an investor, you must do this first and then you can allow yourself to fall in love with your purchase.
Purchase property where the price is likely to increase, for example, purchase in a rising suburb or an upcoming lifestyle development.
Buy in an area that is about to be transformed due to new or special amenities such as a well-regarded school, a new tram line or other infrastructure upgrades.
If rental vacancies are low and neighbouring suburbs are already in demand these are good indicators.
Research the specific market you are buying in, some suburbs have their own unique cycles or are seasonal.
Research and obtain sold property prices through publications online.
Research buyer needs. If you resell what will these buyers be looking for and therefore what will give you the best return on investment.

Buy something that you can capitally improve

If you can undertake a major renovation to maximise your return on investment, great, but you don’t have to undertake a full renovation. Small cosmetic improvements and styling can also yield great results. There are plenty of television shows and publications on this topic alone #The Block.

Buy something that generates income to help pay the mortgage

Can you rent out a room to a friend, family member or colleague?
Does the property have a car space or garage you can rent out?
Can an inner city apartment be set up as an office to rent out during business hours while you are at work?
Can you build a studio over the garage or a “granny flat” that can generate rental income?
Speak to your financial adviser or accountant as there may also be tax benefits if you work from home and/or if your home is generating income.

Learn from the past

My Nanna provided me with many buying tips before I even understood real estate. “Buy close to the city or the water (in her case both), buy close to amenities, and buy the worst house on the best street”. That is what she did, then subdivided, renovated and bought and sold until she had enough equity to diversify and build a portfolio rather than always continue to sell. Nanna was an accountant and what we would now dub as environmentally conscious. “Buy what you can afford, live within your means, replace only what you need and repair what you can”. Boring? Maybe - but after living through World War II she had learnt to find happiness in life’s simple pleasures and did not seek constant and instant gratification. buyinIn many ways COVID-19 with its threat to our existence and wellbeing, with its restrictions and rations, we are now experiencing some of what our ancestors did during war times.

Commit to your future

If you can’t afford to buy where you want to live you can purchase an investment property and rent at the same time. Eventually you will build enough equity to buy where you want to live. Just make a commitment to start somewhere.

Some renters don’t realise that once they put down a deposit that they could be paying the same amount in rent as what they could be paying in mortgage repayments and hence they can potentially be missing out on capital growth and other financial benefits. Ideally a 20% deposit to avoid mortgage insurance is optimal and understandably saving a 20% deposit for many people is a long daunting task but there are options and you should speak to your financial planner or finance broker. You may have to pay a little more on a mortgage as opposed to paying rent but a little short term sacrifice for long term gain will be worth it.
That said, you must make sound financial decisions and have provisions if interest rates go up. You don’t want to be forced to sell in a downturned market.

Speak to your bank manager or financial advisor about different mortgage options such as variable and fixed rates. Despite COVID-19 we are blessed to be living in a country like Australia where there is government support during times of economic difficulty and banks can provide bank holidays for those mortgage payers during financial hardship.

We may be experiencing a pandemic with a recession looming, but our economy is cyclical. Run the numbers, seek financial advice but remember, over time the property market only goes in one direction and that is up.

We live in a world where we can easily access data and services so do your research and become financially savvy. COVID–19 may have given us the pause we need to evaluate what is important and forge a plan for the future. A plan that gets you on the property ladder and on your way to financial and emotional security in the form of a home, a safe haven and a financial vehicle in which to grow wealth and success for a secure future.

*Seek professional financial advice from a qualified advisor to determine what is right for your individual needs.