How to save money when buying property
6 min read
We caught up with Mark Armstrong, founder and CEO of RateMyAgent, to pick his brain about tactics you can use to save money when buying property – and it might not be what you think.
When it comes to building wealth through property it’s a rare thing for someone to get rich quick. It takes a long time for people to save their deposit to buy a home, property appreciates over years not months and market fluctuations, gentrification and population shifts all impact how property values change.
Buy the right property
Mark Armstrong believes the best piece of advice is to buy the right property.
“You might not necessarily buy your property cheaply. Some people think that buying cheaply means they are buying well, these two things don’t necessarily go hand in hand. You might have less costs upfront, but over the long term your cheap property is not going to appreciate at the same rate as a more expensive, better property may. This means over say ten years you’ll lose hundreds of thousands of dollars’ worth of capital growth, all for the sake of saving a few thousand in the short term”.
Whether you’re a first home buyer, next home buyer or investor, you want to your property to increase in value. If you’ve found a cheap property, Armstrong believes it’s probably cheap for a reason. Contrary to some advice floating around the marketplace, you don’t always want to buy a place just for the sake of getting into the market. It might be better to wait a little longer, save a little more and buy a better property rather than jumping in.
What’s the opportunity cost?
“There’s also an opportunity cost attached. If you buy cheaply, then need to sell in a few years to purchase a property that better fits your lifestyle and wealth accumulation goals, you may lose money in transaction costs or what I call the costs of getting it wrong”, Armstrong said.
Transaction costs include things like real estate fees, marketing costs and stamp duty which on average cost around 13% of the property value (5% stamp duty when you sell, 3% agent fees and 5% when you buy again) . If you initially saved a 10% deposit to buy your property you’ve just lost your deposit and then some in the sale, particularly if your property hasn’t appreciated much during that time.
So, what would Mark suggest when buying property?
• Buy the right property. This means taking your time to save what you need for your deposit, doing your research on location, considering what planning or developments are on the cards, looking at the property itself, and understanding capital growth in the area.
• Move quickly. If you’ve found a place you like and the price is right for you then don’t hesitate. Too many times we see clients miss out on great properties because they hesitated. The sooner you act, the less likely there is to be additional market competition (obviously this doesn’t apply to auctions).
• Be ready to make an offer. This includes having your finances approved in advance, your solicitor ready to check contracts and your building and pest inspector ready to go. This gives you competitive edge over other people looking at the same property that haven’t got these things in order.
• Utilise a buyer’s advocate. Their primary objective shouldn’t be to get you a cheap home (although negotiating on your behalf is a secondary objective), it should first and foremost be to get you a good piece of real estate. Leverage their expertise and listen to their advice.