The following is a guest post by Anna Suzdenkova. Anna resides in Toronto, where she works for a major financial institution, runs her own financial blog, Vostro Financial Help, and manages a summer driveway maintenance business. Currently, she’s writing her own personal blog on tips and tricks to better control your finances, stay aware of your path in life, and reach your financial goals sooner. She loves helping people stay out of the dark when it comes to personal finances. Enjoy!
Purchasing a property is one of many people’s dreams. It is the biggest purchase many of us will make in our lives. The decision to buy a property isn’t an easy one. When it comes to deciding what is best suitable for you and your family, the options are numerous and there is a lot to consider. Location, schools, work distance, number of rooms etc are all basic considerations you should make before investing into real estate but which thoughts should you avoid? I hear people talk about real estate with fear and intimidation, as if the decision to buy is bigger than them and can potentially control their lives. What thoughts should you stay away from before diving into the real estate market?
1. Fear of Ownership – The Pressures of Being a Landlord
Being a landlord does have its share of responsibilities, but relative to being a tenant it’s not a significant difference. As a landlord you will be calling the shots on what needs repair, replacement and other maintenance decisions. The living conditions of your house will be in your hands. You’ve been making decisions all your life, what’s to stop you from making household decisions in your own home? There are many resources out there to help you with ownership including local classifieds, YouTube tutorials, online forums, friends and family etc. Being in charge doesn’t have to be difficult, it becomes easier when you know how to use your above resources when looking for answers.
2. Thinking Your Savings Account will be Depleted for the Downpayment
A few of my friends mentioned the reason they don’t want to purchase a condo or a house is because they won’t have any savings left and will have to start saving from zero. This is the biggest misconception when it comes to purchasing property. Meanwhile the same friends are buying the latest technology, cars and are depleting their savings in a slower way. Your downpayment isn’t depleting your savings account, you’re simply moving your money from a bank account into a real estate account, kind of like from one of your pockets to another. Your savings is still in your hands in the form of real estate, which means your money is being invested, likely at a much higher interest rate. Real estate price growth varies, depending on the state or province, regardless of the rate if you are investing long term the value of your property is bound to increase over time. In Toronto, Canada, the average price of a house increases by 8.9% over one year as of August 2014. This kind of rate of return cannot be found in a savings account.
3. You’re Unprepared for Unexpected Costs
Ownership comes with responsibilities. These include maintenance, repairs, utility price increases, property tax hikes etc. All these items the landlord would be responsible for. When something breaks unexpectedly, it would be up to the landlord to fix. For example, if the roof is leaking all of a sudden, of course there is home insurance which can cover some of the cost of the damages but it would be at the owner’s expense to replace the roof. These scenarios would have to be taken into consideration before purchasing property. A good way to prevent most of the unexpected expenses is to do a home inspection before closing the purchase. It’s also good to have emergency funds available so you can be better prepared. As a homeowner, these expenses are seldom and if they do come up, it’s usually something small such as a leaky faucet or a broken washing machine, which can be fixed for cheap throughout the local classifieds.
4. Wanting to Travel or “Enjoy Life” First
Why not do both? If you want to travel and explore the world, that’s great. Remember though, it’s easier to save money for a downpayment when you’re younger because you have less expenses and more discretionary income, so rather than spending money on extravagant trips consider downgrading the trips and saving the extra money for a downpayment. Once you’re moved out and on your own the bills come rolling in and so does the rent. Travelling is great, as a home owner I still travel, but I downgrade on the destination. I choose cheaper destination and always look for deals or last minute vacation discounts. I believe both travelling and owning property can be done simultaneously, the fancier destinations can wait until I am more established and have a higher income or even when I’m retired. Having a plan, managing your money wisely and having a travel account can help tremendously. Setting money aside, even $20 a month, for travelling will add up quickly and mean taking a vacation sooner.
5. I can’t Afford Buying A Property
We all have the same 24 hours as anyone else does, so how come some of us can manage to afford real estate and some of us can’t? The answer lies in three factors: income, existing debt and credit score. These are the top three things the bank looks at when reviewing your mortgage application. Some of us don’t earn enough to be able to afford a house, the solution is to downgrade to a townhouse or a condo, which can be more affordable. Some of us have a lot of existing debt which prevents us from acquiring more credit such as a mortgage. The solution to that is to consolidate all debt into one loan, make one monthly payment and attempt to pay off the debt faster. And some of us have a low credit score, which can be improved by paying bills on time, having less credit applications and not using credit cards too often to show we are not dependent on them. If you have a combination problem, such as having too much debt, low credit score and low income, attempt to change this around by seeking a higher paid job though a job agency, attaining a consolidation loan and making your payments on time. Everyone can afford a property in due time, whatever your financial situation is, the trick is to turn it around with solutions and steer onto the road of success.
How about you all? What helped you overcome any of the above thoughts regarding investing in real estate or home ownership?
Share your experiences by commenting below!
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