Goodbye Renting

by Tracy Lee Harvey

  What is inflation?

  Inflation is usually defined as being the general rise in the price of

  goods and services. However, because the prices on items increase, the

  current fixed wage, salaries and pensions shrinks, which causes

  uncertainties for investment. This in turn restricts the growth of

  economies.

  New Zealand

  As a comparison to the market in general you will see that the

  western world for the most part (in the past), has worked in conjunction

  with each other. That is, when one economy is under stress so are the

  others.

  The inflation rate during the 1970s and 1980s put the economy in a

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  precarious state of uncertainty. The extremely high inflation rate in the

  1970s in indicative of a struggling economy. New Zealand is particularly

  vulnerable to the changes in crude oil prices. As an importer of oil

  products, the 1974 oil price shock affected the terms of trade unlike that

  experienced since the 1930s. This impacted heavily on the nation’s

  economy at the time.

  But it also had a radical impact on the other western nations during

  that time including Australia, Great Britain and the United States.

  The message here is to gain as much informed understanding of your

  own country’s economic growth as possible, by finding out what can

  have a significant effect on that growth and to monitor your own affairs

  to be ready. One of the most important aspects of owning your own

  home is to be informed. By being informed you are insuring yourself

  against the impact of that change. Decisions made need to be educated

  decisions with your eyes wide open.

  I mention in my last book that we tend to live in ignorance by either

  getting caught up in nonsense, unimportant journalism via magazines or

  commercial advertising rather than sourcing important relevant

  information that can guide us through some major, life-long decisions. It

  is a good idea to become familiar with newspapers, TV programs and

  websites that include world news, world trade issues and economies so

  that you can make an informed decision, and have a better understanding

  of the type of impact that decision might have on you and your family in

  the future.

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  Mistakes you can make in real

  estate but learn from. .

  Wrong move

  In 1984, my first husband and I built our very first home in Adelaide,

  South Australia. It was a house and land package. Our house was small

  and it didn’t come with insulation, a driveway, fencing,, a retaining wall,

  carport, paths, curtains, heating, air-conditioning, a cross-over on the

  curb or even enough drain piping to meet the road (another added

  expense). We needed to find the money for each and every item. This

  required a concerted effort in constantly saving for the next thing and

  always going without.

  But this was also a time when something else was happening. The

  housing market was on the move again after a long difficult time for

  most home owners. In fact, by the time our house was complete (to the

  standard we could afford); the cost of housing was going up at

  approximately $2,000 per week. This was a considerable sum of money

  in those days. We had, by default, bough tit at a time that was considered

  the right time to buy and make money on property. If I had known then

  what I know now I would never, ever have sold.

  But my husband and I were very young, having our first child and

  within a year of building the house it was valued at double the amount of

  money we had borrowed. We sold and walked away with over $20,000.

  More money than either of us had ever known before. We thought we

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  were well-off… but in fact we weren’t.

  This was also a time when the only way of securing a loan for a

  mortgage was with a bank or building society. If you weren’t a first

  home buyer you had to have at least a third of he deposit in order to get a

  loan. Well, of course the market had continued to climb steadily for a

  while and we were now buying back into a market that was at a much

  higher price.

  When we tried to get another loan (even though we had a good

  deposit), the banks refused to give it to us. We couldn’t meet the strict

  stipulations that banks required at the time.

  We eventually purchased another home by borrowing more and

  paying a higher rate of interest to a building society. But we made

  another fatal mistake. We spent money on cosmetic changes to the house

  such as a revamped kitchen with new tiles, laminated bench tops and

  floor coverings, all installed within a few weeks of moving in. Then my

  ex-husband was offered a franchise of his own in another State a few

  months later and it was his dream to have a small business of his own.

  This would probably his only opportunity (we thought), so we decided to

  move back to Adelaide to follow his dream. Money was tight so we

  thought our only option was to sell the new house, which we did, at a

  considerable loss.

  There are a number of options we could have followed, but no one

  provided us with the wherewithal to do them and we didn’t bother to

  check any of them out. Why would we, if we didn’t know they existed?

  As a result, we went into a new business with very little capital, the

  added cost of moving interstate again and nowhere to live. It took a great

  deal of saving (almost starting from scratch) to put enough money

  together to build another home of our own years later.

  When you get your own property

  You must look after your assets

  So now you’ve got some assets, what next?

  Rule of thumb…

  Don’t trust anyone.

  There is absolutely no one who will care about your assets or money

  like you will!

  Yes, you can go to all the financial advisers and property experts in

  the world, by all means listen to their valuable knowledge and ways of

  doing things but - again, they will still never have the same vested

  interest in your financial assets like you do. You can learn from them,

  take heed of some of their tricks of the trade, go away and learn some

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  more but - when it comes to putting anything that involves your assets

  into action make sure you feel comfortable with the transaction.

  We all have a gut instinct and in many case we allow ourselves to get

  bullied into doing things we never really felt sure about from the

  beginning, but don’t let anyone bully you into a decision. Always,

  always, take time to digest. Go away, sleep on it or take a week for you

  to think about it.

  Don’t ever be afraid to say no.

  Your gut instinct is a powerful tool that doesn’t get the recognition it

  deserves.

  When you just don’t know what to do - there is a simple answer as to

  how to act.

  Do nothing!

  If it looks like a snake, smells like a snake and acts like a snake -

  guess what?

  It’s a snake!

  You have a responsibility to make sure that your assets are checked,

  main
tained, and paid for, but most importantly, “You got to love it.” If

  you don’t love it, it won’t love you.

  Of course, there are times when you need to hand some of the looking

  after over to someone else like an agent or accountant because you

  simply can’t do everything or because you’ve amassed so much you

  don’t have the time.

  However, even then you and only you must ensure that all things are

  running at their optimum level. Don’t hand too much over without

  having your finger in the pie on everything you own.

  We’ve all seen people who have invested vast amounts of money,

  often their life savings, into a sure thing or a company that collapses

  following the sound advice of a financial guru. Research and research

  again.

  What not to do at the point of sale

  If you have singed a contract on a property you need to be aware of a

  number of important factors. I write this as my younger brother had just

  purchased his first home. He signed a contract ‘subject to finance’,

  which was a good move!

  This means that even if you have had approval in principal from your

  financier, it does not make it definite. It is always best to put ‘subject to

  finance’ when you are purchasing your very first home unless you have

  all the cash up front.

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  I always put it in even after purchasing many properties and knowing

  full well I have the finance available. It is there just in case. I also make

  the contract subject to a building and pest inspection. This is one cost

  that is well worth it. The initial out of pocket expense may save you

  from purchasing something that could cost big bucks, not to mention the

  inconvenience of renovations needed from white-ant destruction. A

  building and pest inspection will highlight any potential problems you

  might encounter and allows you to pull out of the contract if something

  significant is found.

  First home must do's...

  When you do get into your first home there are some absolute musts

  you need to do in order to stay on top of the loan and get some equity

  under your belt.

  Whack as much off the loan as early and as quickly as you can,

  particularly in the first year.

  Make your first payment of the mortgage the first week after the

  settlement. If the bank tells you that the account isn’t set up as yet, ask to

  make the deposit early anyway. Remember this is the first step in

  bringing that loan down and getting disciplined about the payments.

  Treat your mortgage payments like rent and pay them weekly. This

  will put you ahead in payments and give you some breathing scope when

  or if things get tough down the track.

  If things get tough financially, try to re-work all other outgoings and

  cut back, but whatever you do make sure your house is the last to go,

  NOT the first!

  Maintain your home to the best of your financial ability. Don’t ignore

  little things that need doing because they can become much bigger in

  cost and may have been easily fixed in the early stages.

  Insurance

  Hint - Make sure you don’t scrimp on insurance.

  Whether the property is your own home or for

  investment purposes, you must make sure you are

  adequately covered with insurance.

  If it is an investment property even your insurance

  payments are a claimable tax deduction.

  Insurance is obviously important for a number of

  reasons, such as if the house burns down or gets

  flooded, if a tree smashes into your roof or if the

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  glass pane in the shower screen splinters and needs replacing. These

  seem obvious reasons for insuring but when you insure for investment

  purposes there are other aspects to the insurance you may not be aware

  of. For example, there is rent default insurance, an extra insurance that

  covers you if a tenant defaults on the rent or there is an impending court

  hearing about the tenancy and you aren’t getting your usual rental

  income. There is a limit as to the amount you can claim and it is usually

  an extra cover you have added to your contents and building insurance.

  Other considerations may be the amount of liability insurance for

  when or if someone injures themselves on the property (namely the

  tenants) and there may be a likelihood of suing for damages. In addition,

  you may not think you need contents insurance if the property is let

  empty, but you do. Contents insurance in this instance covers you for

  light fittings, kitchen appliances, curtains and carpets etc. The amount of

  cover you apply to your property is one you need to research because

  there are way too many considerations and equations to mention and the

  cover needs to fit with your set of individual circumstances and needs.

  But don’t scrimp!

  If your property is under a body corporate, building insurance is

  usually covered within your body corporate payments but you still need

  to insure the contents. But don’t assume that the body corporate covers

  everything in regards to the building. Find out.

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  Summing up

  The ‘blow out’ in home mortgage, as described by the media, could

  be seen as the negative side to prosperous, global, economic growth

  because demand becomes even higher with investors sourcing bricks and

  mortar. This in turn creates competitiveness in the market and the prices

  rise further, impacting on the ability of the people to get into the market.

  So the best way to deal with that is to create some solutions to the

  problem… correct?

  Governments have been forced to consider new initiatives including

  access to superannuation for a house deposit, tax concessions on

  mortgage repayments for owner occupiers and a housing shared-equity

  scheme targeted at low to middle income earners.

  All of these possible solutions have the ability to ease the pressure on

  housing affordability. In particular, the use of superannuation as a

  deposit has proven to be successful in the USA and other countries. But

  generally speaking, first home buyers are fairly young and don’t have

  much superannuation accrued as a result, so what do you do if that is

  indeed the case?

  Furthermore, all signs indicate that the economic growth will

  continue for at least another three years so - do you live in hope that the

  situation are implemented quickly, if at all, or do you make the move to

  get into the market right now?

  That is a question only you, the potential purchaser, can answer - after

  all, life is all about choices and whatever you decide will affect you one

  way or another.

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  Before-tax dollars versus after-tax dollars

  It is very important that you try to gain some understanding of how

  before-tax dollars work as opposed to after-tax dollars if you are really

  going to invest in property of any kind, even your own home.

  When you go to purchase your own home to live in, it is usually done

  with after-tax dollars. This means that tax has already been taken out of

  your income via wages, salar
y your remunerations. Whatever you have

  left after tax is usually about 30% to 50% less than what you actually

  earn (depending on your rate of pay) because the Tax Office has already

  taken its cut. What is left in the hand is what must be used to pay off the

  mortgage and nothing is tax deductible on an owner occupier home.

  Before-tax dollars are exactly that… before tax is taking out. In this

  instance, the costs associated with investments such as interest

  payments, insurance, rates, maintenance, in fact most items pertaining to

  the investment property can be used to offset the tax you would normally

  pay without deductions.

  These are tax deductible and as such allows you to claim some of the

  costs back.

  Not getting legal advice

  The cost of not getting legal advice and checking out your financier

  can have long-term ramifications for you, so please don’t scrimp or

  avoid checking things out. It really is a small price to pay when you are

  not only investing in something as valuable as property but you are also

  investing in your emotional future.

  Providing a roof over your head

  Apart from providing a roof over your head, I believe property is the

  most secure way to financial independence. While real estate may not

  always rise continuously it is a surefire way of getting passive income.

  That is, income that will always… eventually grow. If… you hang onto

  it!

  In other words don’t sell… ever… or at least until you have

  accumulated enough assets to enjoy a good return and/or want to retire.

  The once expected old age pension, together with welfare support, is

  grinding to a halt. Even if you are fortunate enough to actually get the

  pension, that conservative amount is for surviving… nothing else. If you

  don’t have a few income streams your final days won’t be one of

  travelling around the world or enjoying a luxury beach side lifestyle.

  You just won’t be able to afford it.

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  Even if you have managed to pay off your own home, the consumer

  price index, rates and maintenance alone will eat away at your pension

  and you’ll be hanging onto your house by the skin of your teeth!

  However, if you start purchasing properties while you are earing an

  income (and it doesn’t have to be a big income), the end result will be