In A Fickle Market, Flexibility Is Key
In July last year, we met with a potential client who wanted to buy their next home as they were trading up and moving to a new area.
They were one of the lucky ones as their income had gone up slightly so they thought getting a loan would be a relatively easy process. Unfortunately, however, they were wrong.
Donna and Mike were living in the inner North of Melbourne and wanted to move out to the inner east to be closer to their two sons' school. They both worked part-time and were only planning on upgrading to a small house as for them it was more about the area than the home.
They knew that if they found an old property on a large block that they could extend the home down the track and still have room for the boys to play.
Their biggest hurdle like many other people thought was finance.
They had credit card debt but it wasn’t that much at only $10,000, but they also had a $30,000 car loan so this meant that their borrowing capacity was affected.
We sat down with them and discussed their options for buying and were also in constant contact with their finance broker.
Because they couldn’t quickly pay down the credit card and didn’t want to refinance it into the loan as this would have impacted at what price they could buy, they decided to wait 6 months.
In the end, this turned out to be a good decision for them.
After 6 months they came back to their finance broker and also us.
They had completely paid off their credit card and while they were ready to buy they were worried about getting in over their heads.
Through researching a number of different areas and properties we made a suggestion that Donna and Mike hadn’t thought of.
We knew with two boys that they needed some land, however, we also thought if they bought a place in the areas they were looking, around Surrey Hills, Glen Iris or Ashburton that anything on a lot of land, they would be paying a premium for.
With the market changing it was important they didn’t over commit to a big mortgage or take on a home that might go down in value instead of up.
Our suggestion was rather than a house that they should consider a townhouse that didn’t need work but that was very affordable right now in the areas they were looking due to the price drop of these style of properties.
They weren’t keen on the idea because they didn’t like body corporate fees and still wanted space for the boys to roam around. So a compromise was reached.
After 9 weeks of looking, we found them a townhouse with its own street frontage, without any body corporate. It also had bit of land, but the real kicker was this.
We knew the land was important to them but we also knew that sometimes with boys no backyard is big enough, so we went in search of a house opposite a park for the boys.
Now the reason this story is important is because of a number of factors.
Firstly, the clients had to wait 6 months and pay down their credit card in order to get the finance they wanted.
Secondly, they ended up compromising on the property they wanted and bought a great place well under budget, therefore not over-committing themselves in this fickle property market.
Thirdly, they took on advice from their finance broker and us and looked at how they could get into the area of their choosing without having to take a low-doc loan and risk paying a much higher interest rate.
Fourthly, the loved the idea of the park and realised with their busy lifestyles they didn’t really have the time to spend on a large garden anyway. Lastly, they made changes to their lifestyle and how they spent their money.
Donna and Mike also sold their car in the end and bought a second-hand car that cleared up most of the car loan. This also relieved some financial pressure for them.
What they said they learnt from this experience is that “when the market shifts and money becomes tight you need to make changes that you never thought you’d make.”
Never did Donna imagine herself living in a townhouse with two boys, but they love it and funnily enough now they are opposite the park they have more family time than ever before.
They are not over financially committed and even though they still have the credit card they now only have a $2,000 limit and they keep this for real emergencies, rather than what they thought were emergencies in the past, like holidays and dinners out.
As a result of the changing market, Donna and Mike are now much smarter with their money.
They still have a property that is likely to appreciate in value because they bought in a highly sought after area. They are in the school zone of their preference and they couldn’t be happier.
Their message to anyone who is looking at buying in this market is “to make sure you have flexibility, take on the advice from professionals around you and look at what you can do differently with your spending and your lifestyle to make things work for you.”
“After all sometimes you just have to sacrifice things to get what you want and sometimes what you need like with us, ends up being different to what you thought you desperately wanted. “
So as you can see, when money becomes too tight to mention, you need to be thinking outside the box about what you can do differently to still secure a property that will work for you rather than against you.