Friend or enemy?

Many readers have heard me say this before:

"time is the enemy of the tenant and the friend of the property owner"

The biggest reason we hear when new clients do not proceed with their first or next property purchase is

"I will wait until...interest rates come down/prices come down, the election/cyclone/the US...", (insert... current crisis).

I understand if there are psychological reasons, and that probably means we are not doing a great job of selling, although I strongly believe in property finance must be bought, nor sold - no one should ever be pressured into doing anything.

But for financial reasons, these are not valid and are very costly.

A Brief Economic History

In the meantime, here is a teaser for context - a 55yr history of Australian property prices, adjusted to take out any false effects of inflation.

Many of you will need to ask your parents/grandparents about all the economic shocks since 1970, but there have been a lot, and what we see now is not even a blip.

In the meantime, property prices have risen relentlessly.

I'm not putting this up for idle interest - it should be important context to help keep anyone's thinking on the right track.

The cost of waiting is high.

There are two types of costs of waiting longer than you genuinely need before taking action.

The largest one is not really thought about, and I've never seen it mentioned.

Granted, the costs are higher in a strong market, but over any length of time you are fighting against a rising property market in Australia -see above.

Let's use an example to illustrate.

Current situation.

I will use a FHB, but investor economics are easy to work out (otherwise, let me know, happy to help).

You have seen a property like it and even asked for the contract.

Purchase price today $600,000

Borrow $540,000 (LVR 90%) - can go higher but let's use this.

Loan repayments on a $540,000 loan at 6% interest rate = $1,495 per fortnight

FHB current rent $600 p.w. (if you are an investor, this is revenue)

The "friends and family" experts.

Then, at a Sunday BBQ, Wise Uncle Bob suggests he wouldn't buy; "things are so uncertain, and Donald Trump's tariffs will put us into a severe recession, pushing property prices down 30% by Christmas."

What a disaster, it sounds right and he sounds so confident.

So you take WUB's advice, sign up to renew your lease, and wait 12 months.

However, once again world order was partly restored and property prices increased 10% in line with the continued supply/demand imbalance.

(this is not dissimilar to 2021 when many experts were calling for double digit declines when the opposite happened.)

Direct costs

Over these 12 months:

You pay the landlord $24,000 in rent

our deposit requirement has risen by $6,000 to keep the same LVR.

Total direct costs: $30,000.

Indirect costs

This one is the killer

The same property is now $660,000.

Using the same 90% LVR your new loan amount is $594,000.

For the $594,000 mortgage, using the same interest rate of 6%, the fortnightly repayments are now $1,643.

Look at this last number.

Your fortnightly repayments are now $148 higher for the life of the loan.

If you let this loan run for 30 years (you won't, but this is what the repayments are based on) ,the cost of this one-year delay is $115,440.

With the direct costs of $30,000, just by delaying your purchase one year, the total cost to you is $145,440.

Will the market go up 10% in the next 12 months?

Who knows, but it will go up by this and more, in the next few years, and looking t the chart above, you are fighting an ever-rising trend.

That's why I go back to my first quote.

- Father Time, Or Uncle Bob?

Whether you are thinking of buying, upgrading, or purchasing an investment property, If you want us just to run the numbers for you to see how you are placed - no obligation, no cost, then use this link to get a full plan done for you:

https://bit.ly/tri-state-client-meet

Have a Great Week!!