“Once you’ve bought your first car, your next financial goal should be a house.” - parent
“You should really look at getting into the property market. That’s where I made all my money.” - boss
“My partner and I have just purchased an investment property and plan to move in next year.” – work colleague
No, no, no!
There are many reasons to buy property, be it for investment purposes or to live in yourself, but make sure you ask the right questions first. All the statements above have something fundamentally wrong about them. Can you identify the problem with each?
Many of you would have felt the underlying pressure to purchase property from the earliest years of adulthood. It’s not uncommon to feel as if you can only achieve a true sense of social validation if you become a home owner. This notion stems from our ancestral history where land ownership was been the chief indicator of wealth and social status. Thus, this has been the general message passed down from generation to generation whereby the largest financial asset of any family unit is often the familys’ home.
But before making what for many of you will be the biggest financial decision of your life, you need to ask yourself “Why?”. If the answer is because it’s the normal thing to do, or your parents told you, this alone should not be enough. You need to be able to justify why.
If you’re buying a home to live in, the average mortgage term might be 25 years. When you sign up to purchase a property, you’re signing up to 25 years of a bank taking a large percentage of your after tax income in exchange for a home that earns you no income. There are still some reasons to be happy to do this, but you need to be fully conscious of what you’re giving up to do so, particularly in relation to the lost capacity to grow your wealth.
If you’re buying an investment property, you again need to be able to justify why. Have you run a comparison of all investment classes to evaluate respective returns and capital gains? Are you familiar with the property market you are buying in? Are you going to be able to sufficiently diversify your net wealth after investing in such a large asset?
These are just a small number of the hundreds of questions you need to ask yourself before even considering investing in property.
If you do decide to bite the bullet and purchase your first home or investment property, just make sure you’re doing so of your own accord, and not because society thinks you should.