Buying your next home can be a daunting task, especially if it’s your first home. In today’s show Michael Yardney, from Metropole Property Strategists, takes a look at the common mistakes made by first home buyers – ones that you should avoid.
Kevin: No wonder, when people set out to buy a home that they make some mistakes. You have to understand that quite often the system is stacked against the buyer because all the power is in favor of the seller.
This is fairly true if you’re buying your first home. Quite often that property can be the biggest purchase you will ever make in your life, so it’s pretty important that you know what those common mistakes are. Let’s have a look at a couple of them.
Michael Yardney from Metropole Property Strategists joins us. Hi, Michael.
Michael: Hi, Kevin. You’re right; often your home is a stepping stone to be able to buy other investment properties or a bigger home in the future, too. So they are very important.
Kevin: Another reason I think it’s good to go through these, even for seasoned investors, is to pass these onto their kids.
Michael: It makes sense, doesn’t it?
Kevin: It does. Let’s have a look at a couple of them. What are they?
Michael: One of the common ones is not doing proper research and preparation. Understand what your family’s finances and what your needs are, understand what the plans are going to be in the medium-term. Are you going to have children? Is the family going to grow more?
Then not only look at your own family, but also look more carefully at the areas you’re going to be buying in. What are the statistics like there with regard to crime, or regarding new developments that’s going to occur there? What are the schools like? What’s transport like? What are upcoming zoning issues? Not all parts of every suburb would be ideal to live in.
Kevin: No. Part of that preparation is also getting the right mortgage, as well, Michael.
Michael: It is. Understand what your mortgage capability is and what your budget is. Get a mortgage preapproved. Are you going to get a principal-and-interest loan, or are you going to try to minimize your home loan repayments by having something closer to an interest-only loan? See what finance package is going to work best for your budget.
Kevin: Another confusing thing, too, Michael, is you pick the newspaper every day, and you’ll see different reports about the market. It’s just so hard for people to work their way through that.
Michael: As an investor, timing is pretty important. As a home buyer, don’t be influenced by the market. The right time to buy is when your finances are right and your family circumstances are right. Never wait for the market to be right, because it never will be, will it?
Kevin: No, it won’t be, mate. What about stretching beyond your limit? That always a great temptation – in my experience – for buyers.
Michael: It is, because you fall in love with a home, and you become emotionally involved. One of the things we all tend to do is overcapitalize our own homes. We spend a little bit more; we spend a bit more on the renovations.
The trouble is a lot of first-home buyers, first-time buyers, haven’t got such a big budget, and by overstretching — paying then more stamp duty, paying more mortgage in the long term — it does create a level of financial hardship. It creates certain financial shocks, especially when the market slows a bit and interest rates rise a bit – and Kevin, that’s going to happen in due course.
Kevin: It will indeed, mate. Of course, in any kind of negotiations, it’s not always about price, though, is it?
Michael: No, it’s not. When you’re getting involved in buying a property, it’s important to understand what you want and if the house works for you, and what the vendor wants. Maybe it’s not always price; it could be terms.
Only this week there was a vendor who wanted 180-day terms. He was prepared to stay there for six months, because he really didn’t want to move out until the end of the year. By putting in an offer like that, it was just as important to that particular seller as was giving them a few extra dollars.
Kevin: Michael, also a lot of thought has to go into the right protection clauses in your contract. I’ve heard you talk about the “fed-up purchase.” What’s that?
Michael: Kevin, that’s when you’ve been looking for a few months, and you just haven’t found your dream home. The agents are misleading you, you’ve been outbid by other people, you’ve missed at a couple of auctions. You’re fed up.
One big mistake home buyers make is they buy a home out of desperation. They buy something reasonable rather than something that really, really suits their needs, because they’re sick of the emotional rollercoaster of home-buying. This sometimes is a decision that they regret for a long time.
Kevin: There is another professional party you have to get on side apart from your solicitor, and that is probably a building inspector.
Michael: Yes. If you’re buying a home, I’d always be getting a building and pest inspector to make sure – somebody competent, not necessarily somebody recommended by the selling agent, somebody you can get yourself. They are trained to faults, so don’t freak out if they come up with this long list of things. Just ask for major faults; don’t let the minor faults put you off buying a great property, Kevin.
Kevin: Michael, I said at the start of our chat, too, that it’s pretty much stacked in favor of the seller all the time, because we misunderstand the agent’s role in all this.
Michael: That’s right. The real estate agents are friendly people, and of course, you’re going to have to deal with them, because you won’t be able to directly deal with the seller. But the estate agent’s job, legally and morally, is to get the best price for his vendor – for the seller – so it’s wise not to offend them; it’s wise to engage with them. Sometimes it’s even better to get somebody on your side by engaging a buyer’s agent to represent your interests, just like the seller has an agent representing his.
Kevin: That is probably the perfect point for us to introduce the fact that Michael is from Metropole Property Strategists. They are strategists, they’re also buyer’s agents, and they too can help you. Use the link on the home page at RealEstateTalk.com.au.
On that note, Michael, thank you so much for your time.
Michael: My pleasure, Kevin.