Buying your ‘forever home’ – PPR (Principal Place of Residence) – is an emotional purchase. After all, you’ll be living in it! And potentially your kids will be growing up in it. But make sure you have your investor hat on to avoid paying too much, getting carried away at auction, and focussing in on material items like paint colour!
Here’s what you need to focus on;
Is it your forever location, if not why are you buying there?
I see so many buying their PPR’s simply because they can afford to buy there, knowing full well that this location is not their forever location. If they are only there a few years, the transaction costs of buying and selling hurts them and unless they bought in at a good time to see growth, there is little profit.
Can you handle the repayments if there is a crisis in your life or rates rise.
A life buffer and a property buffer here are critical. Forecasting a 1 or 2% interest rate increase is wise and always being able to save money and increase your life buffer is also important. Don’t stretch yourself too thin just to keep up with the ‘Jones’.
What stage are you buying in the property cycle?
Is the market in a flat phase or has it just finished a growth phase? Most people, when buying their principal home, don’t think about what stage the market is at in their area but this is the single most important factor when buying your own home. Buying at the peak of a market could set you back 10 years in wealth as you could have taken that money and placed it in a recovering or growth market instead over this same period. Buying your principal home in a growth market gives you the best of both worlds.
How much are you spending vs how much will the banks lend you?
You don’t need to and I don’t recommend you borrow to your maximum of what the banks will allow you to. You know your life and your personality better than they do. Again, having buffers and spending within your means will ensure you safeguard yourself from maxing out and running into repayment trouble.
Do you have a cash buffer?
If you haven’t got a cash buffer equal to 3 months of personal expenses, wait until you do before you buy. Don’t put yourself under stress for no reason. Not having a cash buffer in the event of an unforeseen circumstance will leave you exposed when the tide goes out.