Buying Property Step 2 – How much to spend

Be sure to read the overly long winded “When to buy” post first if you care about this stuff.

I think it’s very important that people enter into property buying with their heads and not with their hearts. Property is much like gambling in that there is often some game theory going on… you like a place but don’t love it, should you buy it and risk not being happy, or not buy it and risk it being sold and not finding anything else?. This stuff is stressful and you’ll probably find yourself lying awake at night with your mind running through all the variables… Having said all that, there is one thing you need to do right from the very beginning and then never budge on it: Set a price and stick to it.

Getting to that price is easier said than done… Here’s the steps you should probably follow:

1. First you need to know what the bank will give you. A place like Ooba is a good start. Be prepared for a little bit of paperwork.
2. Next you need to know whether you can afford the repayments. A spreadsheet and budget will help you here. It’s imperative that you be realistic and conservative. Find out what you’re paying on bank charges, go through your credit card statements, include EVERYTHING… Perhaps start keeping your pick ‘n pay receipts so you know how much you really spend on groceries. You’ll want to be in a position where you can make your payments (at 2% or 3% higher interest rates) and live comfortably.
3. If you’re like us you’ll notice that the banks are quite happy to offer you much more than you can probably afford. We qualified for about 250k more than we ended up buying for. Based on your budget figure out what payments you can make comfortably and work out what your total bond amount would be based on those monthly payments. I like this bond calculator. Ask you bond originator what interest rate you should do your calculations on. They’ll probably give you an accurate conservative figure. If we had bought on the limit we qualified for our quality of life would have decreased significantly until one of us got a raise… not something you want to bank on… and we would have been up shit creek if the interest rate went up by 2%… something that you unfortunately need to bank on. (It probably won’t happen, but you need to bank on it)
4. Once you’ve got your final number you can start looking for a property. That’s step 3 which is coming soon.

over and out.

j.