Bad influence
When you buy real estate you'll get plenty of advice, but not all advice is helpful warns mortgage broker Rebecca Jarrett-Dalton.
Property is an emotive topic – it's hard to separate our head from our heart and then there's the fear of making a costly mistake. Additionally, everyone from your mum to the neighbour next door has an opinion and quite possibly a horror story to share with you whether you want to hear it or not, such as tenants from hell and 18% interest rates just to name a few.
So just how do you avoid a well-meaning but unhelpful influence? The very best way is to choose carefully who you are going to actually listen to and to make sure you have a clear focus on your desired outcome.
Who to listen to
The best way to choose who to listen to is to find someone who has already achieved what you want to achieve or who has similar goals to you. Also, depending on whether you are buying an investment or a family home, your accountant is a great place to start. A mortgage broker can also be an excellent advisor.
A good accountant will give you tips around structuring your purchase, explain the tax position, the receipts you need to keep and perhaps even help you with estimating what each option may cost you.
A broker can give you the parameters around what could be possible for you, set out the other items you need to allow for (stamp duty etc), suggest a loan structure and share the wisdom gleaned over helping many, many other buyers just like yourself.
Who to ignore
Some of these property horror stories take on a life of their own and can become akin to old wives tales. For example, "Bob over the fence has an uncle, who's friend was married to a person who had a property that went bad, so Bob strongly advises you don't buy" – with no explanation of what type of property they bought, if it was insured, how they structured the purchase or any of the other whys that you can work on mitigating with good advice. Well-meaning friends, families (and neighbours) have some valid input, but remember that times (and tenants) are very unlikely to be the same as your current situation.
Knowing your end aim
In each instance, knowing exactly what you want out of the purchase can set you up for better success. For example, if the aim is to buy a home for you to live in at retirement, then you may need to commit more income to keep this investment than you might in another scenario where the return in that location may not be as good. For example, you might buy a home on acreage with a view to retirement, but the return will definitely not be the same as a standard residential property in a suburban area.
With that in mind, it's important that you focus on the right location and property type for the future you have in mind, not someone else's future.
Tap into your "smart-heart"
Make decisions with your head, not your heart, and if that is too hard, try at least for a "smart heart" (depending on what the purchase is.)
If you are buying to invest, you need a very different mindset from the one you would have if you were buying your own home. If it's an investment, you want to avoid making emotional decisions and remember this purchase is all about the numbers and not what you would like for yourself on a personal level. As a rule of thumb, you will want to buy the real estate equivalent of a "neutral beige" in fashion. Something that will suit the majority of potential tenants no matter what your own personal preference or style is when it comes to a home.
When you are buying your own home, you'll need a different approach but no less care. This is what I like to call a smart-heart purchase because you'll want to make sure you truly care for the property you are going to call home as changing over to another property can potentially be too much. And while you'll still need to make your primary focus on the essentials you'll need for your home, it's still a good idea to have a list of "desirables" to help you define exactly what you should buy.
The numbers don't lie
Unlike someone's real estate horror story from a friend of a friend, the data gives you the real story. What I love about numbers is that, in most cases, you can reduce complex decisions down to maths. While this won't always predict an outcome for you, it will help you define what is or is not affordable and comfortable. Combine this with the right advice and you will have a much better outcome and avoid your own property nightmare.
Rebecca Jarrett-Dalton founded Two Red Shoes 7 years ago. Her business is founded on principles of integrity, ethics and life as it aims to empower people to make the best financial decisions for their lifestyle. Her passion is creating clarity from the confusion around mortgages.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder have taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.
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