Should you rent or buy? Should you upgrade to a bigger home or stay put?
Should you borrow against your home to buy an investment property - and when should you make your move?
Making your first home purchase, moving to a larger or smaller home, and investing in property – these are big financial decisions, and often emotional ones. Before you make them it pays to consider the issues.
1. Renting to buying
If you've been renting for a while and you're trying to decide whether to buy, you need to consider a key question: are you in a secure job?If you're in a full-time permanent position, you're much more likely to get a loan than if you are in a contract or casual role.
If you believe there's a chance of losing your job, it may be wise to hold off buying a home until the situation stabilises. If you are financially ready to buy then it's vital to choose the right location.
Also, it’s absolutely vital to make a good choice in the property. Your first property is arguably the most important because, if you choose wisely, this asset is the one that will set you on your way to building substantial equity through capital growth.
Not all properties or locations grow at the same rate.
When affordability is a pressing concern, it's far better to buy a smaller property in a high capital growth area, than a larger property in a lower capital growth area.
Present market conditions are ideal for cashed-up first-home buyers because there is very little heat in the market.
This allows buyers to take their time and wait for the right opportunity to arise.
2.Moving to your next home
There are two situations when you may need to move on to your next family home.The first is when you're thinking of upgrading to a larger and more expensive home because you're planning or expanding your family.
The market conditions are ideal for people who are looking to upgrade because although you may not maximise the sale price of your existing property you will benefit from any downward adjustment in price on the new purchase.
Because the value of the new property is greater, so will be the financial benefit to you.
The second situation is when your children have flown the coop and you need to downsize to a smaller and less expensive property.
In this case, it's to your advantage to delay moving on until the market has moved into a strong growth phase.
3. Leveraging against your home to invest
Before you consider buying an investment property, make sure your family home will be adequate for your lifestyle for another seven to 10 years or the full duration of a property cycle.There's no sense buying an investment property, then realising a couple of years later that you need to upgrade your family home. Very few people can afford to do both at the same time.
If your present home won't last the distance, it's probably better to upgrade to another home first, then buy an investment property later.
This article was authored by Mark Armstrong, an independent property analyst, and first appeared in Domain.
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