Buying your first property is exciting, but upgrading can be even more rewarding because you’re inching closer towards your dream home.

The key to upgrading success is not to overcommit or fail to do your due diligence. 

Domain spoke to buyers’ agent Jayne Robbins, of The Informed Buyer, and financial adviser Jason Chew, of Orange Wealth, about what you need to know before you upgrade.

What will it cost to upgrade?

Robbins encourages upgraders to get their financial ducks in a row before they start house-hunting.

“It’s not just borrowing capacity you need to look at, you also need to understand your lifestyle costs and if those costs will go into the future with you,” she says. Buyers should consider what might affect their earning capacity and expenses in the years ahead, such as maternity leave, school fees and overseas travel.

Chew says it’s common for buyers to kick off their hunt looking at properties beyond their budget. 

“People need to manage their expectations,” he says. “We show them the impacts of different purchase prices on their cash flow, their lifestyle and their retirement.”

Chew helps buyers to calculate the transaction costs of upgrading, from stamp duty and sales’ commissions to marketing and moving, and also advises on debt structure.

“The starting point is usually to try and get a better deal with your current lender,” he says. Chew also works with clients to explore different loan structures, like interest only, principal and interest, fixed or variable rates and offset accounts.

Decide if you want to buy first or sell first

If you want to minimise the stress that goes hand in hand with buying property, Chew suggests selling before you buy.

“You want to know you’ve got the capacity to borrow the amount of money you need for the next property,” he says. 

That said, there will be some upgraders who decide to buy first and may then need bridging finance. A bridging loan is a short-term, high-interest loan that covers the cost of purchasing a property before you sell an existing property.

Alternatively, if you decide to keep your current home as an investment, you’ll need to consider the tax implications.

“It’s likely your new home loan will have very high debt and your investment property has a comparatively low amount of debt which is not great from a tax point of view,” says Chew.

What do I need today and what will I need in the future?

If you’re upgrading to your “forever” home, it needs to keep pace with the growth and changes anticipated for you and your family.

“You need to understand what life will look like for you in five to 10 years’ time,” says Robbins. “Will you have teenagers that need separation? Will you need more car spaces for parking? Will you need particular school zones? Don’t just think of your needs now, but ask whether a property will be flexible and grow with the needs of the family.”

And, if you’re planning to buy a home in need of renovation or a knock-down rebuild, be sure to check with the local council on what’s allowed.

Analysis but not paralysis

With your budget set, it’s time to get familiar with the market, but Robbins says it’s important not to let endless research distract you from the end goal, especially if prices are increasing rapidly.

“There’s a lot of information available online, it can almost be too much,” she says. “At the moment, time spent researching is costing you in price increases. So, my advice to clients is to research until the point where you’re confident you can price a property without an agent’s input.”

Start by attending auctions to get a real-time picture of demand and sale prices. Attend open homes so you can see first-hand the good and the bad of properties that present beautifully online. Gather sales data available on property portals to build a picture of pricing in your suburb. An informed buyer can make an informed offer to buy a property.

SOURCE: https://www.domain.com.au/advice/how-to-purchase-your-next-home-four-things-you-need-to-know-1050789/