When it comes to big decisions in life, the leap to buy your first home is one of the biggest. Taking on the mortgage is the biggest financial commitment you will make, while the house is your biggest investment decision and also a lifestyle decision that will impact everything - from your job prospects and commute to how you spend your free time and your distance from your family and friends.
It is important to note we are not in the business of giving investment or property advice and many of these questions came from me (Jess) asking for advice on this issue. We are however in the business of proposing questions as they relate to people growing and leading more fulfilling lives. So we have looked through our Four Lenses at this big decision to give you a wider perspective on your current position.
You may be:
- Close to being able to buy a property but are wondering if it’s too much of a stretch
- Feeling like you’re well short financially at this stage and wondering if you’ll ever get there
- Already in the market after having bought your first place
There is an interesting paradox when it comes to property and personal finance. We are saturated with information about the struggles of entering the property market with even smashed avocado having made its way into this national debate. At the same time, most people are quite private about their finances so it’s a topic that not a lot of people like talking about at a personal level. That is why we want to raise some questions that could be of use to you in your situation. So let’s get into the Four Lenses.
Who am I and how strong are my foundations? Am I ready to make such a big commitment?
- Are there other things or events in my life that I need to address before committing to this (e.g. overseas travel, study)?
- Where does owning my own home rank in my current life priorities?
- What are the merits/dangers of leaving it a year or two? If I decide to buy a house, what might that mean for me in 5 years time?
- Why do I want to buy a house? Is it because I think I should (like my parents did or because of the “Great Australian Dream”)? Because my parents think I should? Or because it’s what’s right for me at this time?
- Have I done my homework? What do I know about buying property? What don’t I know and where can I find it out?
- Am I looking at this just as “getting myself set in the property market for my own residence” or also as “an investment of capital which should be compared with other alternatives”? After all it’s probably the biggest investment decision and financial commitment I will make in several years.
- Where does the location rank in priorities? E.g. living near the water? Near a big park? Close to OR not too close to parents or parents-in-law? What are my job options here or elsewhere where property is cheaper?
- Am I clear on what sort of home I’m really after? Where does the type and standard of property rank in my priorities? Am I really after a “renovators delight”? Or a big garden for the kids? Do I enjoy fixing things up? Or working in the garden? Or is my priority simplicity and ease?
- Family plans? Given those, how long are we likely to stay in this home?
Do I Deeply Understand The Opportunity, Potential Opportunity Loss and Alternatives Available To Me?
- By buying a house in this suburb at this time, what options does this open? Does it put me in better position to house kids? Or a worse position to afford them? Are there local jobs and schools available?
- What options does this close? Will I be able to afford to start my new business? My current lifestyle? The ability to retrain? What compromises will I need to make and are they worth it?
- What are the alternatives to buying a house? Could I buy elsewhere and continue renting in my dream location? Could I grow my financial assets/ security another way? (e.g. investment in the stock market, building a business)
- How comfortable and competent would I be at any of these other investment alternatives? Is it time that I start to learn how to invest and build capital?
- Do I really understand the property options that are available? How do I maximise the number of potential property options open to me at decision time? Even just for comparison purposes? The more information you have the better equipped you will be to understand a good opportunity when you see one.
- Am I being too narrow in my criteria? Should I expand the options? Could I look at suburbs 5 km further from the city centre? Should I consider house minding in a variety of suburbs to see what they’re like? Should I look at buying a “worst house in a good street” and do it up? Should I consider apartments instead of houses alone (or the converse)?
- Who have I told what I’m after? How can I optimise my flow of information about what’s available? You never know when a friend or family member might spot the perfect property for you.
- How can we make ourselves better borrowers from the point of view of potential lenders (e.g. quantity of income, certainty of employment with permanent salary rather than on contract)?
- What alternative sources of finance are available? Where are the cheapest and most flexible options?
- Be curious. How are others my age or in comparable situations tackling this and what can I learn from them?
- Who can I talk to for advice and possible opportunities? This is a decision where getting professional advice could save you a huge amount.
- Where does AirB&B or leasing out a room fit into my plan?
If this property is definitely the one I want, have I spent the time creating a strategy to get maximum return on my investment?
- How can I accelerate my accumulation of the relevant deposit? Weekend jobs with Uber? Tighten the belt and spend less? I need to invest my deposit in a relatively risk free and highly liquid manner so I can it when the right opportunity comes.
- Do I have the confidence and courage to back myself and commit?
- Do I have a strong vision for what value I can bring to my life by living here? What will be the benefits of being in this location and its community?
- Do I have a strong vision of what the property can become? What can I do myself? Have I got mates who can help me on some reciprocal basis? (If I’m an electrician, can I do a swap of labour with other friends in trades?)
- What bits of the fixing up should we do ourselves? Can this DIY experience make the process more enjoyable, satisfying, social and cost effective?
- If we’re going to fix it up and can afford to do so, can we do it now and start benefitting from it?
- How can I maximise this experience as a learning opportunity? Can buying this property set me up with the knowledge to invest further in the future?
If I buy, how will this impact my life sustainability and balance?
- What are the factors that can put my home ownership at risk? Job security? Changes in interest rates? In the event of an increase in interest rates what buffers do I have in my capacity to meet my repayments? (eg. only be prepared to go to the level of borrowings you can still service while still having a 2 week holiday each year – the capacity to forgo the holiday creates the buffer).
- How will the work on this new house and the commute to work affect the amount of free time in my life?
- What are the motivating reasons for buying this house that I should keep coming back to? Financial? Lifestyle? A project?
- Am I being objective about my budget? Have I done my homework regarding the maintenance and possible capital costs? Do I deeply understand the rules of my loan?
- What things am I giving up to make this possible? E.g. holidays or having kids? Deferring starting my own business? Will I be able to keep that up?
- In sustaining this commitment, how can I make sure other vital parts of my life are still being met (E.g. my relationships, my free time, my health)?
- Do I need to slow down and reassess? Would taking on this commitment take me into a territory that would be unsustainable?
For a topic like this the questions are unlimited! We hope that this article has helped you to think more deeply about the decision ahead of you. If one particular question spurs on a Lightbulb moment we would love to hear about it and if you know someone facing this decision please share it with them. Tune in on the 1st of February for Big Decision #4 – Picking a career path.