The real estate cycle
Investing in real estate presents a huge opportunity. It has the possibility to make a huge impact – either positively or negatively - based on the decisions you make. If done right, the benefits can be felt for future generations.
This month, I wanted to bring the five phases of the property life cycle to your attention. If you are someone who likes to think ahead, you’ll know that each phase presents its own opportunities and challenges as the years roll by. Making the right decision at the right time when it is presented to you can turn out to be lucrative. For example, buying a pre-construction condo in an up-and-coming location can provide the down payment to buy your family home down the line.
Whether you are planning on buying your first home to downsizing (or helping an ageing parent downsize), a good realtor will be able to provide guidance from start to finish.
Buying your first home
The first stage of the cycle is quite a daunting one: getting on the property ladder. Before buying a home, make sure it’s the right time to do so. Generally speaking, I usually tell my clients that owning a home pays off financially if you plan to live in it for at least five years. A good realtor will work with you to think ahead and try to do his or her utmost to improve your life financially. Other key topics your realtor should be addressing with you are: your price range; doing your homework on location, outlining how the buying process works, including the all-important closing process.
Buying your family home or upgrading & selling your old one
There is new ground to navigate within this second phase that you didn’t encounter during the first. For instance, figuring out how to sell your first home and the fact that you will need to get a down payment together and do not qualify for the rebates or programs that were available last time. On the plus side, you might already know some realtors that you will want to work with for your home sale and home search.
When you were buying your current home, you might have had to scrounge to find the money for a down payment. When buying a second home, that might not be necessary. That’s because you won’t just have equity in your home from your first down payment but, depending on how long you’ve owned your home and the market, you could also have paid off a significant chunk of your mortgage or your home might have increased in value.
That could be enough to pay a 20 percent deposit on your next place – which would mean that you could forgo costly mortgage insurance and save money. Of course, if you are buying a home that’s significantly more expensive then you might still need to borrow a little and pay for the mortgage insurance. It just depends on what kind of home you’re looking for and what your current mortgage and financial situation look like.
Getting started with an investment property
There are plenty of reasons to think that property is a sound investment. For one thing, it beats the uncertainty of investing your hard-earned cash in the mutual funds or cryptocurrency, which, unless you have a great understanding of them provide little security for your capital. However, as with any investment, it’s better to be well-versed before diving in and buying a property worth hundreds of thousands of dollars.
One piece of advice when buying an investment property is to keep in mind that they generally require a larger down payment than owner-occupied properties, so they have more-stringent approval requirements. Calculating your operating expenses and determining your return are also key things to work through.
Buying property abroad
I understand the attraction of buying a property of your own overseas. Who wouldn’t like the chance to celebrate summer in the sun or enjoy a better work-life balance? Property buyers have long been tempted by destinations across the globe, or even within their own country, and while it is an exciting prospect, there are some key things I tell my clients to keep in mind when buying abroad.
Before any house-hunting begins, it’s important to work out a realistic maximum budget and consider how much you can borrow. Liaise with a local realtor who can help you find a property that ticks all your boxes. The next step is to make an offer, but before doing so, make sure the property has been fully inspected and there will be no unexpected surprises.
Downsizing or helping find the ideal home for ageing parents
Maybe you are thinking about downsizing, or your parents are in the phase of their lives where they are ready for a smaller place.
One of the main practical challenges with this phase is figuring out where to start. I recommend dividing the process of sorting through the property itself into smaller, more manageable parts. Setting time limits or focus on one small area of the house (a single room or one even one closet) at a time can make it seem accomplishable.
In terms of the financial edge to downsizing, it is typically better to buy in a seller’s market if what you are buying will be less expensive. Percentage-wise, it means you will make more on the sale, which is a higher price than you will have to pay on the purchase, as this will be a lower price.