When buying your first home, don’t just look for a roof to put over your head; find a property that will also be a long-term investment.
Part of moving up the so-called property ladder is about gaining capital growth through a wise purchase. When you decide to sell, you ideally want to benefit from capital appreciation which allows you to purchase something more valuable. But to do this, that first investment should be made with great caution. Here’s some advice.
The cost is more than just the purchase price
Not only is property a long-term investment that, on average, takes about seven to 10 years to grow, but the associated costs of a purchase are also expensive. Remember that you will need to pay transfer costs and attorney’s fees, so consider what your life stage will be over the next time period because you do not want to be in a rush to sell.
Think about your next life stage
Good estate agents will prompt you with the right questions. Are you planning on having children in a few years? Will there be enough space? Will the stairs be a hazard? Do you already have children who will need schooling soon?
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The affordability and area ratio
All these questions have a bearing on affordability, says Pam Golding Properties’ General Manager-Operations, Bradd Bendall, who advises that you should extend within reason, bearing in mind potential interest rate and cost of living increases.
“Give yourself a healthy margin to manage increasing lifestyle costs. Be prepared not to have the perfect home. If necessary, buy the worst property in the area that is most perfect for you,” says Bendall.
Consider offsetting the cost
Another way to ease the financial pressure of a bond is to find a home with a cottage or flatlet that you could let to students or holidaymakers.
Invest in your peace of mind
Absolute peace of mind with your purchase is key. Make absolutely sure that there are no obvious problems with the property. Don’t be afraid to turn on taps, flush loos, open cupboards or ask questions about damp. Invest in professional advice from a builder or engineer if necessary.
Timing, timing, timing
Then, of course, there’s that million dollar question: is there a right time and a wrong time to buy? Property markets are generally cyclical, but not only that, these cycles can vary according to different areas. So, before you assume that the property market is in a depressed or buoyant state, gain market insight on the specific area that you are interested in, from a reputable, local estate agent.
Something to avoid is purchasing a property at the top end of a market cycle only to have to sell it within only a few years. In this scenario, you may not see any capital appreciation. If you have to move, it may be prudent to let it and allow time for some capital appreciation. Ideally speaking, your best scenario is to sell in a buoyant market and purchase in a depressed market.
Finally, it is widely believed that real estate is one of the most popular sources of wealth creation. This content was written in collaboration with Pam Golding Properties, who found in a survey of high-net-worth individuals that an estimated 33% had accumulated their wealth through property investments.
As a first time buyer, a small down payment allows you to purchase a property and grow your own wealth over time, as opposed to paying rent and increasing someone else’s wealth. With a clever renovation and with the inevitable long-term growth in house prices, by all accounts you should be able to upscale and move up that ladder.