New Year, New Home?
About 58% of people set New Years Resolutions over the past few weeks as we entered a new decade*. One of the most common new year’s resolutions is to buy a home. If 2020 is that year for you, there’s a few things you can do now to put yourself in the strongest possible position and translate that goal into reality sooner than later, and with less stress along the way.
* And 73.6% of statistics are completely made up.
Like many big milestones in life, buying a home - whether for the first or the fourth time around – takes effort, time and planning to do it well. Being a major financial purchase, it’s well worth putting in the energy in order to get the best result, be that getting the lowest possible price or actually identifying and buying the right property, or ideally, both!
Even before you’ve thought about engaging a buyer’s agent or going it alone, there’s a few steps you can do now to put yourself in a great position to act with confidence when the right property comes along. The first is the most important yet it’s so easy to skip and get caught up in the excitement of looking at specific properties. Whoa, betsy. Take it down a notch and let’s start with the basics.
Right now, we’re at the ideal time of year to set a strong foundation as there’s typically fewer listings at the very start of the year. Selling agents are busy meeting with vendors who’ve had some time over the holidays to discuss with the family about selling. Generally, we’ll find the number of new listings increases each week towards the end of the school holidays and particularly after Australia Day, as the property industry gears up for plenty of auctions in February and March. Behind November, March is the second busiest month of the year for Canberra auctions.
So what can you do right now to be well prepared ahead of those upcoming opportunities?
First and foremost is your budget.
If that’s making you dry wretch, let’s call it your money.
I’m not talking about saving for a deposit necessarily, although that is a large part of buying property – especially your first. By this, I’m referring to your ability to hold a property for the longer term, and to own it comfortably.
Too many people buy a home then get into financial hot water because they didn’t plan ahead. I know this because I see them selling their homes all the time. They’re known as ‘distressed vendors’. It’s not fun being one of them – they often have to take a hit on price and the whole process of selling becomes very stressful and sad. Don’t be one of them. I’m not going to suggest you need to track every last dollar on a colour-coded Excel spreadsheet for the next 365 days unless that’s your thing. In which case you’re probably already doing it.
For the rest of us mere mortals, consider using an app or something simple to categorise your spending so that you can easily see trends and exactly where your money is going. Make this really simple and choose something you’ll actually use as you need to see your spending patterns over a period of time; three months is a good start.
Apps such as Pocketbook and MoneyBrilliant can be fed directly from your bank statement and automatically categorise the expenses based on your habits. It’s far easier to identify trends when the software does the heavy lifting for you. Look at how much discretionary income you have (that is, what’s left over after payday) and figure out what you can really afford to put towards your deposit, pay down that mortgage, or simply cover the ongoing costs of property ownership.
If it’s the first time you’ll be buying property, there’s going to be many upcoming trips to Bunnings and homewares shops once you’re a homeowner – get ready for a new obsession with things that you never thought twice about before, like the debate between blinds and curtains or a sudden desire for ‘occasional’ tables. If it’s not your first rodeo, don’t automatically assume you’re all set. Make sure you’re aware of the additional cashflow if you’re upsizing to a bigger mortgage and consider the impact on the household finances of increased bills. A larger home is more expensive to heat and cool, the rates may be higher and even if you’re downsizing you may need or want to buy new furniture to suit the home. Ensure you have a buffer to accommodate any sudden expenses. Should your air conditioning system bite the bullet in the middle of Summer, you’ll sleep well (literally) knowing that you have enough money in the bank to fix it, no sweat (argh! No more terrible puns, I promise). When it comes time to setting a budget for how much you’ll spend buying your home, be aware that there will likely be some hidden costs beyond the purchase price of your new home.
You’ll be paying more than just the purchase price
Rates: Paid quarterly or upfront annually. The ACT Government has a tax plan in place to increase these annually. Check out the latest tables to calculate current rates, assuming you know the land value (UV, or Unimproved Value) of the property you might be buying.
Insurance: Don’t just get any old policy. Look at what is covered and what is not. Are carpets and dishwashers under contents or building? What happens if your appliances are at fault and there’s a flood? Are you in a bushfire or flood zone? Are you buying into a strata building, and does that have its own building policy? If so, what does that exclude? Spend a little time examining things such as complete replacement cover for peace of mind. After the 2003 Canberra bushfires that burnt many homes here, it was really sad that many homeowners were under-insured.
Utilities: By this I mean gas/water/sewerage/electricity. ActewAGL used to have the monopoly on the Canberra market but now we have a choice between a couple of different options for most utilities. Consider the size of the home and the time of day that you require energy before choosing a plan. Solar panels may be something you’d like to add if not already installed.
Renovations: It’s difficult to quantify this before buying a home, but from experience I can say the vast majority of buyers want to make changes to the home to suit their needs and/or taste. Give yourself some wriggle room and allow for the likelihood of making changes. It’s not nice to live through renovations; plan to have these done before you move in and you can enjoy the new improvements from day one.
Repairs: Things do need replacing. Some of those are unforeseen, such as appliances needing replacement, a window gets broken, the roof starts to leak, or new wiring is needed throughout the house that you weren’t aware of. Life happens. If you’re able to fix things when problems are small, you’ll also avoid bigger expenses down the track. A well-maintained home is a big asset when it becomes time to sell.
Stamp Duty: The ACT Government is smoothing out their income stream by reducing stamp duty (yay!) over a 20-year period (less yay). https://www.revenue.act.gov.au/tax-reform Current rates of stamp duty (aka Conveyance Duty) can be budgeted for, as they are based purely on the purchase price. https://www.revenue.act.gov.au/self-assessment-tools-and-forms/calculators/conveyance-duty-calculator
Land Tax (only if your property will be vacant or leased to tenants).
Moving Costs: Will you be using removalists, or enlisting help from some energetic friends for your move? Do you need anything installed or assembled? Call around a few reputable removalists for quotes. Some also offer additional services to pack and/or unpack boxes for you, which can make life a lot easier.
Gap Costs: You may have a gap between moving out of your current place and moving into the new. Consider whether you may need to store some items and what time of year, as the Canberra cycle means that over the Summer months storage rates can vary. Also consider if you may have some short-term accommodation costs if there’s a gap before moving in. Even if you don’t plan for one, sometimes settlement doesn’t go to plan despite you as the buyer being fully prepared.
Tracking your spending is the first step
If you would like to save more of your hard-earned, a little self-awareness goes a long way. If you love your daily coffee fix and don’t want to give it up, look for other ways to cut back or save on bigger ticket items (I’m looking at you, insurance renewals!). Check out the stellar advice from Scott Pape, the Barefoot Investor and Serina Bird, the Joyful Frugalista (who has many great tips specifically for Canberra) and you’ll be saving more money in no time.
Owning a home is a long-term proposition. I’d recommend making small changes that you can live with over eating 2-minute noodles for a month, but you do you. Look at your habits and see what you’re able to adjust if you need to. Books such as Atomic Habits by James Clear can help you to make small changes to create a big impact.
If 2020 is the year for you to buy your new home, don’t lose heart if you’re not yet seeing many listings on the property websites. Vendors and their selling agents are busy preparing, which makes right now a great time to do the same. You’ll be ready to pounce with confidence by getting a strong foundation in place now.
Happy house-hunting!
Claire