Proppy
The smarter way of buying and selling real estate

Buy Like A Boss!

 

Here at Proppy, we value efficiency. When you partner with us to sell your home, you’ll cringe at how much time, money and effort you've wasted in the past. We’re pretty confident we’ve got the most efficient way to currently sell your home, but what about buying one?

I’ve seen plenty of people buying property over the years. I haven’t always seen how those decisions turn out long-term. But I’m often surprised by some of the logic, or lack of it that drives those decisions at the beginning.

It turns out, there’s a skill to buying a home. Especially if your goal is to optimise your happiness and future freedom. You can optimise the heck out of the process and buy like a boss! The following insights will save you a truck-load of money. I've borrowed a fair bit from mrmoneymustache.com and edited for the NZ audience. A warning to any potential snowflakes. I’m going to slap you around a bit first so you can cut years off your working life to pay down that mortgage.

Line Up Your Ducks

Before you do anything at all, sort out your finances. I’m assuming you have a 20% deposit. The larger the deposit the better you’ll sleep at night. And sleep is important, but I digress. If you’re borrowing money to buy, find out how much you can borrow. But don’t stop there. Interview a few banks and a good mortgage broker or two. Find out how much that money will cost you for the life of the loan at today’s rates (and higher). Then ask how long it will take you to pay it back. Use a good online calculator to double check the bank’s claims.  If you find their answers sobering, good.

But, if you come away feeling excited like you’d won the lottery, find a meaner bank or a better broker. Seriously. Despite great marketing, the bank is not your friend and is not giving you all this easy money because they like you.

 

Rent vs Buy?

There are a few bits of old folk wisdom that need to be put out of their misery. “Real estate is always a good investment because it never goes down.” “They aren’t making’ more land, so buy it now.” “Renting is throwing your money away. You should buy because you’re building your equity.” Sorry, but that’s all a load of BS to get you to buy something. If you’re not happy with what your saved and borrowed cash allows you to buy in the current market, Google ‘buy vs rent’. Rent or buy the smallest amount of house you can get by on. Two months after you unpack, science shows your happiness level will adjust to what it was before. If the payments are well within your means, your bliss and happiness buckets will be full.

In expensive areas (homes starting over $600,000), the math often comes out in favor of renting. In cheaper areas, especially with the currently-low interest rates, buyers usually win. Between, there are some considerations that tilt the balance. People who prefer not to maintain their own house should be renters. The contractors will eat you for lunch if you do things like calling a plumber to fix a broken toilet. People who love customizing things to their own liking might still prioritise owning. In either case, there are costs. Do the mortgage interest, property taxes, and insurance add up to more than rent for an equal house? If it does, you are throwing more money away by buying than you are renting.

Value Your Time (& Everyone Else’s)

Thanks to the internet, those crafty agents are no longer the keepers of all the information. You can find out as much as they can so research the heck out of that house before arranging your maiden visit. Review all the info and photos online, and check out Google maps and Street view. If you’re still interested, walk past a few times and try to imagine yourself living in the neighbourhood.

Consider this; a seller may want to cut the lawn, tidy and vacuum the whole house, get the kids to clean their rooms before your visit. Then they have to find somewhere to go for an hour while you visit. The agent may have to shuffle family and other commitments to work around your viewing. Only arrange private viewings if you're serious about buying the home. Unless you’ve maxed out your weekend, try to fit with the open home times.

Be the Biggest Property Nerd in the Room

The way to scoop a good deal is to know the market better than most agents. Visit lots of open homes and find out what they’re selling for. Check out the sale prices in neighbourhoods you’re considering. Visit proppy.co.nz, homes.co.nz, oneroof.co.nz or trademe.co.nz/property/insights for free price estimates on any property in NZ. This will take 30 seconds or less on your phone. Set up email alerts for homes coming on the market in your price range. Know exactly what you and anyone buying with you are looking for and figure out a plan of action. Your goal here is not only agreement but enthusiastic agreement. Make it a robust discussion. Use spreadsheets if you recognise their mathematical and scientific beauty.

The Location Cliche

Yes, this is the only thing you can’t change. It’s a cliche, but with good reason. The thing people don’t do is the math around commuting by car to work, shops, and schools. Have a look at this article to get you started. https://lifehacker.com/5855550/the-true-cost-of-commuting-you-could-buy-a-house-priced-15900-more-for-each-mile-you-move-closer-to-work?IR=T

Now imagine that cars don’t exist. Where would you live then? With a bit of planning, it’s possible to have work, shopping, school, and library in the area you live. By looking for public amenities, you can get many of the benefits of a country house right inside the city. The more things you live near, the fewer things you need to own yourself.

Sweat the Big Stuff, Ignore the Carpet

When touring houses with buyers, I’ll often hear things like, “Oh my god, I love this pantry!”, or “Daaayumn.. this place smells dingy.. let’s get out of here.”

Shelves with spaghetti sauce on them or an old worn carpet tend to have a big impact on buying decisions. They shouldn't. These represent things that are easy to fix, at a tiny fraction of the cost of the house itself. Would you make a car buying decision based on how full the gas tank or the wiper fluid reservoir is?

Pay more attention to big details. For example, which part of the house faces the sun? Do you want a house that has little windows and no regard for what sort of heat and light they will let in? If heating is a big expense, get a house oriented East-West with lots of windows facing the sun. If you are in a hot climate, you want something with large roof overhangs and some shade. How efficient is the wood-burner, air conditioning, insulation, and water heater? These things make a difference of thousands of dollars per year. This makes them more important than most other home features. Good solar exposure and window placement generally makes for a happier living environment.

Size Does Matter

An interesting question is whether size or square meterage is a big detail. According to traditional real estate agents, it’s one of the biggest. Square metres, relative to other houses nearby, is the biggest factor in a listing price. But as a buyer, you can ignore it. More important is, “is there a large enough common room for my family and friends?”. This can happen in an 80 square metre house, or be lacking in a 320 square metre one. A smaller house will be as useful if a big chunk of the missing space might be stuff that isn’t living space anyway. Hallways, staircases, or an overly-big master bedroom fall into this category. A well-designed house all at ground level may be as efficient as a compact two storey house or vise-versa.

Make Ninja-Like Offers

Move fast when the time comes. You found a great house, and you know it’s underpriced. Do you go away for the weekend and think it over, then try to set up a viewing next week? No. You tour it within a few hours of its arrival on the market, and you make an offer before you eat dinner that night. Good deals go quick, so if you want one yourself, you must be even faster. In a fast market, it’s not unheard of for people to make offers within 8 hours of listing time. You don’t want to lose it to another person who only took 6 hours. Plus, the more people that see it and want it too, the greater the chance that you’ll be competing and the price go up. Know the speed of the market and act accordingly.

Keep Calm and Learn to Negotiate

You can start things off by giving yourself a great gift that will make the rest of the process go much smoother. A calm and rational mind. Repeat after me: “I am not buying a flowery pillowcase of emotions or a future of warm memories. I am conducting a business transaction to buy a piece of land and an assembled collection of construction materials.”

Don’t worry, there will be plenty of time for the pillowcases and the memories after you buy the house. But don’t put the carriage in front of the horse. For now, you are a Business Man/Business Woman looking to conduct some business. The strength provided by this mindset is essential to get the results you want.

Give Your Future Self a Hug

And finally, allow yourself time in the market. If you take the time to research every listing and sale in your area, you’ll soak up the market on a deeper level. Within any year, you’ll see houses sell high, and low, given their quality and size. The market is hot in summer, cool in winter. And there are frequent random events, like a bank dumping a mortgagee sale at $100,000 below market value. Or an estate sale with an out-of-town real estate agent setting the price way too low. Given the large sums involved, it makes a lot of sense for a home buyer to plan to shop for six months or more. Don't rush to find a house during a brief window of a summer vacation or a weekend house-hunting tour. If you spend 50 hours researching houses, but save $50,000 on a buy because of it, what’s your hourly rate?

Adopting even one or two of these ideas will take you to the next level of house buying. When you buy well and have all those extra dollars sloshing around in your bank account, remember there are many ways to invest. Property is only one of these. But that’s a story for another day. Now that you’re the boss, happy buying.

 

Cheers,

Jason

jason@proppy.co.nz