Tuesday, 24 September 2013

Why I started hunting for my own home so early

Regular readers of Journey to 90 million may remember that I did quite a long series about investing in real estate.  Indeed every week for quite a long time I would have another topic to post on.  You may also have noticed that I have not done a post on real estate for quite a while.

The reason for this is quite simple - I wrote about my experiences in buying my first investment property and tricks and tips I learned along the way.  Once the investment was bedded down though, and all I was doing was collecting rent and paying the bills associated with it there was not a great deal left to post about.

With my previous investment property ticking along smoothly and given that all my other investment categories also going along to plan I thought it was finally time to start looking for my own house.

Why have I started to look for my own home?

When I moved out of home at the start of the year (which I posted about at the time), I considered buying a house but decided to rent instead.  This was partially because I was not making the smartest decisions after a break up but also because I knew that financially it made much more sense to rent.

As an aside people always say that 'rent money is dead money' but this is absolutely false.  In fact the biggest form of dead money is the interest on a loan.  If you think about buying a home versus renting, if the interest bill is higher than how much you'd be paying in rent then you are always better off financially by renting.

Note that this is true both over the long and the short run if you can be disciplined enough to save every dollar that you would be putting towards your own home into other investments so that you do not lose the benefits that come with an appreciating property (i.e. capital gains).

Even though it makes more sense therefore, to rent rather than buy I have decided to buy my own home for several reasons:

  1. I was thinking of buying another investment property anyway
  2. I am thinking of  buying a house which needs a fair bit of work and then doing this work myself over a few years 
    • i.e. 'adding value'...note that there are some well known dangers in this which I have considered
  3. There is an intangible benefit to owning your own home which I never appreciated
When am I thinking of buying?

This is not going to be in the short run...in fact I've decided that I probably wouldn't buy a place until late next year.  I decided this for a few reasons
  1. I need to build up a good deposit
    • With your own home (unlike an investment property) the interest you pay is not tax deductible so you want to pay down that loan as fast as possible
    • I want a deposit of ~20% + stamp duty
      • If I sold all of my share investments and included this with the money currently in my offset account I would probably get close but I want to keep a lot of my investment strategy in place when I eventually buy
  2. Other life factors come into play
    • I have often said that although I am very focused on my investments and savings this is not to the detriment of my life (nor does it drive what I do)
    • I am seriously considering my current girlfriend as a life partner and I'm going to have much more clarity on that in a years time...which is probably when I will be looking at buying the house
So why am I looking so early?

Unlike an investment property where you are primarily concerned about returns (both rental and capital growth) there are many more lifestyle factors which play into buying your own home.  You are much more focused on the place being perfect rather than a risk / reward / return trade off that is with investment properties.

I have just started my search and I pulled up a map of the state I live in and decided on general region that I wanted to live in.  From experience with my investment property I know that you really need to decide on one or two suburbs to make your search efficient.

Because there is so much more choice involved I know it will take me much longer than the few months it took me to find my previous property and so I'm getting started early. I also don't want to get the type of 'search burnout' that I was close to getting when I was hunting for my investment property.

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1 comment:

  1. Good article - In the US interest on your primary residence is tax deductible. Perhaps you should move there to take advantage of that?