I just bought my first property and it was terrifying.
Property is a sound investment, it’s a smart thing to invest in: that was one of the few pieces of investment advice my old man drilled into my head from an early age.
The other was live within your means – but I’ve chosen to ignore that on a few too many occasions. Something present Alex would love to have a stern word to past Alex about, if I ever got the chance. Especially when the time comes to scrape together the deposit for a mortgage.
Every spring for the past few years there have been reports of a property bubble, along with stories about how it’s at its peak and investors need to be careful.
The RBA financial stability review last week fired out a second warning in as many weeks about hype in Australia’s property market.
Heck, I was the bozo who bought a property on the day the RBA said property was overvalued.
I just bought a house on the day the RBA sounded a warning on property prices. Send Vodka.
— Alexandra Heber (@alexandraheber) September 16, 2014
National housing prices have risen by more than 11% in the year to August with prices in Sydney and Melbourne markets growing more than 16% and 12%, respectively. A lot of the growth is being driven by investors, which is also showing up in new loan data, with investors accounting for 45% of new loan approvals in Sydney recently, HSBC chief economist Paul Bloxham said.
For a first home buyer there’s nothing worse than having to compete with these investors in a bidding war – and as we found out, some have very deep pockets.
But like the advice of “live within your means” I didn’t listen to the RBA or one of Business Insider’s economists.
We wanted to stop paying rent and have a place of our own. Even though the RBA also said this year you’re probably better off renting rather than buying. More on that here.
Here’s why we didn’t listen and how I regained a little colour in my face after making the biggest purchase of my life.
We’d been watching real estate listings come and go since early 2014. We’ve run the gauntlet at crowded open homes, been outbid on apartments and fumbled through all the admin that comes with organising finance. (How backwards is that process? Here’s an idea startups, make getting a loan less stressful and get rid of that darn paper.)
But just over two weeks ago we stumbled across this one apartment.
I thought it was probably out of our price range and wasn’t going to bother going to the inspection – it was a sunny Saturday and I would’ve much preferred plonking myself on the sand.
But my partner and I muscled up and walked through this dream pad.
It had 10 foot ceilings, louvres, two bathrooms and enough wardrobe space to cater for my unhealthy obsession with clothes.
We went into this dream-like state. This was the one.
We hurried home after spending about 20 minutes in this place, floor plan in hand and I started scribbling and sketching out rooms, noting which walls I’d knock out, what I’d put on the floor and which shade of white I’d slap on the walls.
I was already well ahead of where we should be after spending less than half an hour in a place we were going to sink our life savings into. My usually rational partner wasn’t much help here either. He wanted it too.
We had to put on a game face and act like it was repulsive. It was negotiation time.
Shooting off an email after scanning the contract and some comparable sales, we low-balled the agent with a cheeky offer. But we didn’t fool him. He was definitely onto us. Although we still had time on our hand – the property had only been on the market for three days.
It wasn’t going to be opened again until Saturday, which meant we had a few days to gear up and get this deal closed before those pesky superannuation-backed baby boomers swept in and outbid us with all their cash.
I called my dad, who is one of those boomers. The guy who knows a thing or two about property investment. The one who told me that’s where you put your dollars – you can’t go wrong. He tells the story of buying his first house when interest rates were 18% in the early 90s and how he had to work weekends to make the repayments.
I gave him a run down and his first words were “you’ve gone in too high”.
I actually wanted to be sick. What had we done? was my line of thought for the next few days as we negotiated terms.
Mind you we hadn’t even done a second inspection yet. I rallied the troops – a builder, an engineer and the in-laws to come through the property (another 20 minute inspection) to calm my nerves.
They reassured me it was perfect for our needs – the location was top notch and we couldn’t go wrong. We upped our offer. It got accepted while I was at work and I actually had to sit on the floor under my desk to come to terms with it.
Acting on the clever agent’s pressure, we exchanged the very next day. Now a quick disclaimer: I used to work in real estate and was one of those people who acted like it was nothing to slap down an offer, I used to tell buyers just like us “don’t worry! It’ll be fine”. At that point it’s not fine. In fact it’s so far from fine I want to punch past Alex in the face.
Buying a property is the most emotional and stressful transaction I have ever gone through with. Everything that happens is a fateful sign. We forgot the deposit cheque when we were signing contracts – I almost ran for the door thinking it was fate telling us not to do this.
But on my hunt for sanity reassuring advice, I got fed some great lines.
- It’s a consumption good – You need to be happy in it and as long as you can comfortably make the repayments it doesn’t really matter how much you bought it for.
- Pay down the mortgage as quickly as possible – You pay less interest and you can get to your next place quicker. Gulp. Not going through this process again ANY time soon.
- It’s forced savings – You’ve got to live somewhere right? And instead of paying off someone else’s mortgage renting, you can start building up the equity in your own place.
- Treat it like a home, not an investment – You’ll enjoy it more and won’t worry if the market fluctuates up or down in the years ahead.
So now we’re waiting to settle and for that first mortgage payment to drain from our account. Buyers remorse comes and goes. But it’s too late now to back out and I’m ok with that. So I’m focussing on choosing floorboards and trying to find the perfect couch.
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