The Emotional Journey When Buying Property

Step 1: Sign engagement letter and pay engagement fee

Feeling: Excitement and questioning if this is the right thing to do and I’ve engaged the right person to do the job

You're probably excited to get started, eager to begin looking at properties and keen to start your journey towards financial freedom!

The excitement is probably tinged with a little bit of doubt still whether spending so much money is the right thing to do, and wondering if Retire Rich Advisory are the right team to do it with.

It's completely natural to feel these competing emotions and we all have doubts when making large decisions. Humans don't like change, and taking a big step like buying an investment property, becoming a property investor and proactively working towards being financially free are all big chances so having doubt is natural. At Retire Rich we perform huge amounts of research and have decades of experience so you can rest assured if you decide to purchase one of the properties we suggest you will be making a sound financial decision.

Step 2: Liaise with mortgage broker and accountant

Emotions: Confusion and doubt whether everything needs to be so complicated, do we really need to go down this complicated path? Can't we just keep it simple?

Nothing in life that is worth doing is easy. We try to keep things as simple as possible, but investing in property is a complicated and risky business if not done conservatively and correctly. By engaging the right professionals and following their advice we're able to mitigate some of the risks and maximise the potential to grow our wealth, while navigating the complicated legal, accounting and finance mine fields.

Step 3: Begin search for properties

Emotions: Excitement and concern that we won't find the right property for you

There is always another deal one phone call away. As investors we don't make emotional decisions, we take the emotion out and make rational, logical decisions based on data analysis and financial metrics meaning if we don't get this property because it doesn't meet the criteria appropriately then there will be another one just around the corner.

Step 4: Offer and acceptance

Emotions: Fear of missing out, fear of paying too much, fear of buying the wrong house

There is always another deal around the corner so if this one doesn't proceed we will find another one shortly. The price we've paid for the house is based on solid market research of other recent sales in the area for similar properties. The market is running hot, so we've factored in the most up to date prices plus growth in the market meaning we're paying a market rate for the property which is necessary to secure houses in the current market.

Getting a good deal is important, but missing a property and then paying $15k more next month for a similar property because we were trying to get a bargain is not a good way to make money. Being in the market is the most important thing at the moment, and as Warren Buffett says it's better to buy a wonderful asset at a fair price, than a fair asset at a wonderful price. Find the right house, get it for a bargain or pay a fair price, but most important is to lock down the right house.

Step 5: Finance application

Emotions: Concern whether you will receive formal approval, is this the right loan and best interest rate? Do I need an offset account?

Banks approve loans every day, your application is just as strong as the next one so there's every chance yours will be approved as well. Banks are in the business of lending and they want to lend money so there is a good chance your application will be approved.

If if doesn't get approved then we can try a different lender or renegotiate terms with the seller. Houses are being bought every day of the week, banks are very good at what they do so there's nothing to worry about until there's something to worry about, and then we'll address whatever issue comes up as it comes up. There's1001 things that could potentially cause a hiccup in lending, so trying to guess how to mitigate all of them is time consuming, worrisome and won't effect a better outcome so it's best to leave the worrying to someone else.

The lending landscape and options are many and it’s a mortgage brokers job to know where to go to get a loan and what features to use. The best interest rate isn’t always the best loan, sometimes getting the loan is the most important thing and the interest rate is the second or third priority. Whether this is the best loan and best interest rate will always be a discussion point but ultimately the broker is the expert so we need to trust in their expertise and allow them to do their job.

Step 6: Building and pest inspection

Emotions: Concern about the details, worry over minor defects, maintenance and general wear and tear

Houses get old, they get used by tenants and they get wear and tear. Minor defects and general maintenance issues are very common for all purchases, even brand new properties will have issues come up when the buyer is receiving handover from the builder. Don't sweat the small things, we can potentially use some maintnance items that come up to renegotiate a better selling price but it's a bonus if this happens, the deal has already been made at the sale price and minor maintenance items are expected.

Items of concern are extensive termite damage (small amounts might be ok depending upon location and extent of damage), live termites in the house and major structural defects. These items can either be negotiated through with the seller or potentially may be enough to cancel the contract and walk away from the purchase.

Step 7: Unconditional finance approval

Emotions: Relief, elation and anxiety at being responsible for all this debt and the repayments

Thank goodness we got the loan! Now we can relax because we know we'll be settling on the house shortly…but…now we're resonsible for all this debt!!!

It's very common to feel this way, most people aren't comfortable with debt and the thought of having the responsibility of all this debt terrifies some people and will keep them awake at night. Rest assured, this is "good" debt, meaning you've used it to acquire appreciating assets, it's not being used for depreciating assets or worse, retail therapy! Counter intuitively, we need to get into a whole lot of "good" debt, in order to acquire appreciating assets which will then grow sufficiently that we can sell some of them to eliminate all of the debt and be debt free.

Step 8: Variation or extension to finance or settlement dates

Emotions: Concern the seller will cancel the contract, concern the deal may fall over, concern there may be penalty interest charged

Sometimes things do run as smoothly as planned which means we need to request an extension to finance or settlement by a week or two. This is very common and probably happens in 1 out of 3 purchases, so real estate agents are very familiar with this and will help smooth the process over.

Occassionally a seller won't agree to an extension. This generally isn't a cause for concern, it's a tactic used to apply pressure to the buying side to ensure we keep the process moving forwards as fast as possible. The seller may have a deadline they need to adhere to, or they may feel like we're getting a good deal, or they simply might not be a team player. Whatever the reason, normally we can just keep forging ahead to get the finance approval as quick as possible without a negative outcome, or we move towards settlement as fast as possible. Sometimes there may be penalty interest charged if we miss settlement which may amount to a few hundred dollars a day which again can be used as a pressure tactic from the seller to ensure we keep things moving on our end as fast as possible.

Typically the real estate agent and the seller both want the deal to go ahead because by this point we're all over a month into the sales process, so neither the seller nor agent want to go back to market but they also want to keep the pressure on so that we get to settlement as fast as possible.

Step 9: Settlement

Emotions: Anxiety that settlement may be delayed, there may be a problem with finance, there might be penalties if we can't settle on time

Settlement rarely occurs on the day that it's scheduled for in the original contract of sale. If everything runs smoothly and all parties are ready settlement can happen sooner than anticipated, or more often there are delays on the buying or selling side which pushes settlement out beyond the anticipated date. There are 3 days grace for the settlement date, meaning we can settle 3 days after the date per the contract without issue.

If the delay comes from the buying side and there hasn't been a variation signed then the seller has the right to charge penalty interest which normally is a few hundred dollars a day, or 9% of the contract purchase price. Equally, if the delay comes from the seller's side the buyer has the right to charge penalty interest after the 3 day grace period. This doesn't happen often but equally it's not uncommon to see this happen. A very rough estimate would see penalty interest being charged in 1 out of every 10 settlements.

Step 10: Tenant in your house

Emotions: Worry they may not be the best/right tenant, they may not pay the rent, they may trash the place and cause problems

We purchase landlord insurance to cover worst case scenarios, but we hope we never have to use it. Provided we're using a good property manager, 9 times out of 10 we should have a good tenant in the rental. There are occasionally bad eggs but like all problems, there's no point worrying about it until the problem exists. We want to be aware of the risk, mitigate it as best we can by using a good property manager and buying land lord's insurance to cover the downside, but beyond that there isn't much we can do, so leave the worrying at the door and let the property manager do their job.