20 Sep 3 More Things We Want You to Forget About Investing in Real Estate
Our previous blog, 2 things we want you to forget about real estate investment discussed two important misconceptions – that you need a deposit to buy your first home, and that your first home cannot be your dream home. Now, we are going to address another 3 mistruths that you should disregard immediately.
- There are, “Good,” and “Bad,” Areas
This is a truth that has grown to ridiculous proportions. While it’s true there are some areas in every city on the planet that you would not want to live in due to excessive poverty, violence or the potential for natural disaster, it’s an oversimplification to regard a city as having good and bad areas.
Why is this important? Because plenty of opportunities are missed through a lack of understanding ofcertain areas. Take a drive through any suburb and you will likely find streets with front lawns mown, kids playing in the yard, neighbours chatting to each other and good schools nearby. These are the obvious marks of a good area, and so often because of the postcode, first home buyers end up purchasing something of a lower quality in a, “better,” area. Speaking of bad areas…
- Expensive Areas will be Worth More in the Long Run
There is a long list of first home buyers who have sacrificed in order to purchase in an expensive area. They do this because of the think their property will increase in value faster because the area is, “better,” than other suburbs. Of course, this is not necessarily true, and even if it is, everything is relative. If they purchase a property for X amount in a great area, and it increases in value by 12%, the difference in actual tangible value will be comparable to them purchasing a property in a less expensive area which returns a slightly higher percentage. Even if the overall return is higher, the cost has been living in a worse house for an extended period. Purchase an area where families congregate, and people take pride in their property. These are the areas that people want to live in, and spots which are most saleable.
- I May Be Better Off Renting
This statement is usually made concerning cash flow. When you are paying a certain amount and rent and you look at mortgage repayments which will be excessively higher, suddenly lifestyle and sacrifice become major factors in your decision making. In addition, crippling mortgage repayments mean that you can’t put money aside for savings and as a result, you find yourself in a terrible position when an emergency occurs.
This is all true – if you purchased something that was outside your means.
A well-structured mortgage should allow you to have money left at the end of the month, and the ability to save. Of course, most of your savings will end up being in property; as the value of the property increases, your equity goes up, and you have something you can leverage against should you require it. The critical element here is making sure that the mortgage you are taking out is designed with you and your family in mind. Look at your outgoings, budget for emergencies and work with your advisors to create a package that will suit you in every circumstance.
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