Buying your own property is one of the huge milestones that many aim to achieve.
Regardless of the fact that you are a first-time buyer or a seasoned buyer, there is a list of things you should consider before making the purchase. Read on to find out what are the top 10 mistakes which you should avoid when purchasing a property in 2021.
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1. Purchasing the property purely based on your emotions
When it comes to buying a property, many factors, such as the state of the property, location and accessibility to infrastructure, have to be considered.
Despite that said, we are often influenced by our emotions and make the property purchase based on the aesthetic and ‘feel good’ factor.
We know that buying a house is exciting, especially the first one, but you should keep your emotions in check to avoid making a decision that you would regret later on.
You would definitely not wish to purchase a house that looks aesthetically pleasing, yet starts to fall apart and thus, revealing all the not-very-hidden defects and leakages. A rigorous home inspection is important as it saves you from unnecessary hassle and costs, which could have been put to better use.
As a result of your emotional purchase, you might overlook other opportunities and better options when you have your mind fixated on your ‘ideal’ house.
Another downside of an emotional purchase is exceeding the budget of your purchase, yet having to fork out a small sum to redesign the home even more, to your liking.
2. Not knowing the true value of the property
Knowing the valuation of your property is crucial to ensure that you are not overpaying or buying a property that would be difficult to sell off in the future. It is important to engage reliable and qualified surveyors or valuers to do actual valuation.
If you prefer to do your own in-depth research and analysis, you can always use a free online property valuation tool or search up on historical transaction value of similar properties in the area.
Either way, you will be able to make an informed decision when entering into a negotiation.
There are also other reasons as to why property valuation is important – to get a successful application for a mortgage loan, renovation purposes and financial planning.
Be careful to not fall into the trap of presuming that the amount of mortgage loan approved by the bank would be based on the purchase price of the property. It is actually based on the appraised value of the home, aka. the property value.
Knowing the value of the property can help you to make the right renovation decision as most will tend to steer clear away from renovating areas that will cause the renovation budget to be exceeded. Some might even rule out areas which will not affect the property value after the renovation.
When it comes to your retirement, knowing the value of a property can help you make a smarter financial decision – be it you are downsizing or selling off your property.
3. Buying a cheap property instead of a valuable one
You will never know what will happen in the future – an economic recession or another wave of contagious virus (hopefully not), that may leave you with no choice but to downsize or sell off your property.
In such cases, the property which you are planning to purchase now should be worth $x in the future, and not cause you hundreds of thousands of losses.
Even if those scenarios do not happen, the property should ideally be of a certain value that would benefit you in the future.
Purchasing a cheap but invaluable property creates another problem for you in the future as it will not appeal to the future buyers at all. The buyers might be led to think that there are some issues with the property (though it might be in an excellent condition).
Another aspect to consider is that the cheaper property might not be part of any estate development plan for the next decade or so.
This is why properties that are rising in value tend to be around those areas where MRTs, bus interchanges, or other amenities are being planned to be built in the next few years.
4. Not getting any mortgage advice, or getting the wrong one
Rather than choosing a mortgage based on your own research, you should ideally engage a mortgage consultant who will recommend the most suitable mortgage for you.
He/she will assess your financial capability by asking you a series of questions and subsequently recommend you the most suitable loan package.
By getting the right mortgage advice, you will be able to save up to thousands of dollars monthly and will not have to get confused over Total Debt Servicing Ratio (TDSR) or Mortgage Servicing Ratio (MSR) calculations.
Additionally, applying for the most suitable mortgage will increase the rates of getting the loan approved. This will minimise the application costs if you were to have 10 rejected mortgage loan applications.
PS. If you are not planning to seek advice from any mortgage consultant and are planning to go for a bank loan, be sure to get an In-Principle Approval (IPA) from the bank. This document will help you to secure the loan from the bank and it should be secured before paying for the options fee for the property.
5. Skipping financial calculating AND not engaging a professional
Buying a property is not a child’s play. It is of importance to work out the facts and figures before committing to a property as I’m sure you do not want to be scrimping on every cent to pay off the loan.
As a property purchase is one of the bigger expenses in your life, and it is a long-term commitment for most, it is recommended to have a professional to work out the finances and calculations before you jump into property viewing and show flat tours.
There are inevitable costs when it comes to buying a property. Examples include option fee, stamp duty, Additional Buyer Stamp Duty (ABSD), legal fees, valuation fee, and property taxes.
Some payments have to be made upfront while some could be recurring charges. With a detailed financial planning by a professional, you will be able to purchase your property with minimal stress on the financial aspect.
If you are still planning to go about it alone, then be sure to fully equip yourself with complete knowledge by joining my Free Masterclass (No sales, Pure Education): How to consistently increase your cash flow with property even if you start with a single HDB with limited time and capital.
6. Spending a bomb on the renovation
A renovation can be a thrilling experience, especially for first-time homeowners, as you will be able to plan out every corner of your house.
For the majority of us, comfort is one of the most important factors when it comes to a home, and the level of comfort can be increased with a renovation.
As such, it might lead to an excessive spending on the renovation, even when the original condition of the house isn’t that bad. This might lead to a scene where the property owner has to cut down on other expenses just to pay for the renovation cost.
A tip to managing the renovation cost is to ask yourself: ‘Is this really necessary, or can this be purchased after I’ve settled down for a few months to assess my needs?’.
Though it might seem like a simple question, many seem to forget about the aspect of needs vs wants when it comes to big ticket items.
Note: Renovation does not have a significant impact on the future value of the property.
7. Being influenced by the sales agent’s deceptive sale tactic
Choosing a property agent is as important as choosing the property itself. There are a small portion who will put their own interests’ before yours, and use deceptive and manipulative sales tactics to trick you into agreeing to the deal.
One of the common tactics used is ‘fear of loss’. Once the agent knows that you are interested in the property, they will start to tell you that there is another buyer who is interested in the same property.
The intended result is to make you feel like you will be losing the property if you do not act fast. After saying that for a couple of times, they will rush you into signing the form to secure the deal. As a result, you might not think twice before making the purchase and will sign the papers without thinking further.
Some might also entice you into buying the property by offering you a special rebate or discount, claiming that it is only available for a limited period of time. In such cases, you should not be tempted to jump into the deal, especially if you have not worked out your finances.
Another sales tactic would be to quote an unexpectedly low price in order to attract more buyers and increase the competition among buyers.
This will lead to an auction or a private sale, and it is done to bump up the low starting price while getting a considerable number of buyers wanting to purchase the property.
8. Thinking that the property will be the (first and) last
A general rule of the thumb is to buy a property that will suit both the current and future family size and lifestyle, especially if you are getting the first property with a partner.
If you and your partner choose to have a small and cozy home without any additional rooms for your future kid(s), it would mean that you will have to do another property hunt when you both are planning to increase the family size.
The rule of thumb is especially important as most buyers tend to forget the fact that they may have new additions to the family in a few years’ time.
Other considerations are the proximity to your workplace, the number of schools around the area, and amenities around your neighbourhood.
You might also want to consider the fact that your parents may wish to move into your house in the later part of their lives, as they might require your care, or vice versa.
If it is the latter, the property valuation that was done before you made the purchase will come into play as it will determine your profit or loss from the property.
Therefore, planning ahead and buying a property that suits your current and future lifestyle is the most ideal if you are able to afford it.
9. Not planning ahead for costs that may arise
A big part of your property purchase stems from the financial cost. Thus, you have to factor in costs which are likely to arise in the future.
This includes getting a renovation 20 years down the road, or the cost of opting in to the HDB Enhancement for Active Seniors (EASE) program. Though the EASE program is subsidised, it will still come up to a few hundreds to a thousand, depending on the upgrades selected.
Other costs include property taxes, utility costs, real estate agent commission, valuation fees, stamp duty, option fees, legal fees, mortgage loan interests, home insurance, and maintenance cost.
10. Allowing peer pressure to affect your buying decision
Making a property purchase is a decision that will stick with you for a couple of years (for most people).
We are not advocating the fact that you should ignore your elders’ and peers’ opinions completely, but instead, to listen to them and do your due research on the property before making the purchase.
It is also important to consider the location, future developments, and your financial capabilities before making the purchase.
Do not buy a property just because your aunt said that it will bring you good fortune.
Additionally, do not feel the need to get your own house just because your peers are doing so.
Make sure that you are financially capable before making the purchase, and be sure to find out the value of the property (as mentioned in point 2) to ensure that you are not paying more than the value of it.
In the same way that your peers can give you inaccurate information, instead, surround yourself with people who share your interest and well being by joining our smart parents/investor community and be part of Yvonne Megan’s inner circle.
With these 10 pointers in mind, you can safely go on ahead to purchase the ideal property that you have in mind. Check out the top 10 mistakes to avoid (insert link to article here) if you’re planning to sell the property in a few years’ time!