by EK Wills
There are many aspects to finances in the family: from workinpocket money to planning for future education and, even more fundamentally, the family home. And these factors cannot be considered in isolation as they impact on where you live, how you live and the environment you live in.
Our family lives in one of the most expensive cities in the world. The housing crisis has hit the point where the Australian dream of owning a quarter acre block, or even a modest unit, to house a growing family is becoming a thing of the past.
I’m not a financial adviser and I didn’t study finance but in order to plan for the future you need to do some research and figure out what you are willing to invest in.
The current trend is to ‘rent-vest’, a combination of renting and investing, whereby the family lives in a rented property in the city and buys an investment property somewhere more affordable. The idea behind this is to build equity and financial stability in the future while being able to live in the suburb you like by renting.
However, it has now reached the stage where even renting a place in the city to contain a full family of 5 is prohibitive.
Popular belief says that a mortgage generally costs twice as much as what you would pay in rent. In Sydney, this is now more like three times the rent.
If you’re not in a position to buy at the moment, there is an approach where a tenant can ‘lease-purchase’ a property from a landlord.
In this situation, the landlord agrees to sell the rented property to the tenant for an agreed price at the end of a specified rental period for that property. In this case, you would need to make sure you are able to buy at the end of the specified period: so check with a mortgage broker.
If you’re not sure you would qualify at that time, a ‘lease-option’ gives the tenant the option of purchasing the property during or at the end of the rental period. To do this, you will need a water tight contract to outline the terms, including how much you will pay if you choose to buy after the lease period. Either set the price now or when ready to buy.
Since the option gives you the exclusive right to buy the home during the option period, you’ll need to pay for this privilege, typically 3% of the purchase price. So you will need some up-front cash. In addition, you pay a ‘rent premium’ over the market rate, which is applied to the purchase price. If you don’t exercise the option, you will lose the 3% and the accumulated premium.
Of course, the landlord has to want to sell the property. Many sellers have never thought about leasing their home to a potential buyer so even if it is not advertised, it is worth asking. Traditionally, if the market is slow, there is more chance they will consider it. In Sydney though, the market has been hot: until now.
No-one can 100% accurately predict what the housing market will do (if you could, you’d be financially free!). But if the Sydney market slows in the face of tightened up foreign ownership laws and taxes, it may well provide opportunity.
Are you willing to take the risk? That is the big question here!
Buying a Sydney property is going to hit the family purse hard and lock you into a mortgage of high repayments. And what if the interest rate goes up? Will you be able to afford it?
Then there are the holidays that the family may have to forego in order to facilitate the purchase of the property. And trips to the movies, restaurants, even the zoo are restricted.
Since no-one has that crystal ball, we can only anticipate what may come and plan for that. There is no doubt that jumping into a big property purchase requires risk-taking. Many would argue that you are putting all your eggs into one basket. Others will say that the Sydney market is over inflated or even a bubble about to burst. But the longer you do nothing, the higher the prices go.
You need to work out what is important to you and your family. Is it instant gratification and a comfortable life now? Or investing in the future? Maybe you have another way to generate future security that doesn’t involve property.
Talk to your partner and think about where you want to be in the future. Have a family meeting. It is a great way to get your kids thinking about finances.
Whatever you decide, you need to do your homework. Do the figures, get the appraisals and the finance check. Determine whether you can afford it, decide whether you are risk averse or not. Most of all, decide whether you really want it.
Good luck!
Comments