Grow a money tree in your back yard
Posted by Faith, 18 February 2010
Can you grow a money tree?
Yes if you:
- buy it cheaply (at the right price)
- look after it, keep it healthy, give it time to grow
- don’t over-spend on its maintenance
- use its fruits wisely and not give too many of them away
- sell the tree for more than what you’ve paid in total over the time you’ve owned it.
The “money tree” I am talking about is property. You can make money on property if you know the tips and traps, have a solid plan and realistic expectations.
It doesn’t matter what type of economic market we are in, our entrepreneurial spirit kicks in and we start looking for ways to make more money than the ‘nine to five’ can give us.
With New Zealanders’ love for property, it is no wonder that buying and selling houses is regarded as a cure for a number of money ills.
Two key reasons and the subject for this blog are:
- The great retirement plan – sell your house at age 65, buy something cheaper and use the spare proceeds to top up your pension.
- An investment - buy a ‘do up’, renovate it and sell it for a profit.
Note: these reasons are just examples and not necessarily strategies I would recommend until considering the entire financial situation of a client.
These reasons don’t always work out, especially if they are ill planned. Often due to our own naivety or because of other forces beyond our control, the outcome does not meet the expectations. The housing market can be flooded with houses in a boom, with the sellers hoping to lure the unsuspecting to buy at more than a house is really worth. In a recession, many also think there are ways to make money. We see our friend’s house fall in price and wonder if we should our house now, so we can pick up a bargain when prices fall even further.
Whenever you sell or buy property you are usually in same market place. That is, if prices are depressed in your area, they are often the same in other areas too. If you want to inflate the price of your house to make money, guess what others are thinking - the exact same thing. There are only a limited number of buyers out there and a limited amount of money. Rather than try to outsmart the market, try doing it for the right reasons and in the right ways for the best result.
If I am asked, “Is this a good time to buy property?” my answer is always the same, whatever the housing market: “If a property is available at the right price, and is what you need and can afford, then buy it.”
Here is my checklist of do’s and don’ts when buying or selling property:
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“Begin with the end in mind”, a famous line from the Stephen Covey book 7 Habits of Highly Effective People. Know what you want to achieve from doing this?
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Ask why do you need or want to do this? And, what are the consequences if you don’t do this?
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Consider your timeline - when do you want to do this by? You may need to start planning this 12 - 18 months in advance to allow for:
- Renovations
- Getting advice from real estate agents
- Looking at other properties
- The length of time it takes to sell your current house.
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Do you have to sell right now, or could you wait longer before you list your property and avoid any market doldrums. In a flat market you could end up paying huge advertising costs to drum up interest. However, a flat market could be the right time to buy if you know what you are doing and you don’t have to wait to sell a house in order to buy one. The worst time to buy or sell is if you are over-eager or desperate. Both of these create too much emotion at a time you need to be level-headed. If you are realistic with your pricing and have the right attitude, there is no good or bad time to buy or sell.
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Include your other short, medium and long-term goals in with your property buying/selling decisions. How do they all fit together? Is it a five-minute money making idea, or a small part of a bigger plan? What is the next step after this for you? For example: If you need to sell because you can’t make ends meet or your mortgage is so huge that you can’t sleep at night, then take action. Don’t be embarrassed. It takes a lot to admit you need to take a step backwards or sideways. However, you’ll be better off in the longer term, once you are free from a big money burden.
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Consider the following for the house you live in today, or the “do up” you want to buy, before you make a decision about selling or buying
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What is it realistically worth now – get two or three different opinions on a market valuation? Listen to their advice, look at other houses and their prices in your area and then make a judgement.
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Could you renovate to increase the property’s value easily and quickly – get some practical trusted advice – over-capitalisation (spending more on a house that you could recover when selling it) turns a money tree into a money pit
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Ask yourself if you have the time, expertise or desire to do the renovations. If not, accept you need to lower your expectations on the amount that you might receive, if the house was improved/renovated.
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Does your current house suit your needs? If so, why are you selling it? If it doesn’t meet your lifestyle or family, then what do you need and can you afford to move to get what you want? Can you renovate instead and stay?
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Consider the type of house you will move to
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Where will that be? – if you want to downsize whether for retirement or to get some cash out of the house, what areas do you have to live in and would you be happy with that? Think about where you live now and the distance to the community, schools and health centres. How it will change if you move?
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What is available in different areas? Go to open homes before making your decision and be honest. If you live in a 4-bedroom house now with plenty of space, can you accept a 3-bedroom one, even if it is cheaper?
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How much can you realistically buy a house for and does that fit with your other plans? A trap we can fall into is thinking we will release $50,000 from the sale and purchase, but then we end up spending that $50,000 and more, on the new house in order to change it to suit our tastes.
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Don’t forget real estate costs, lawyer’s fees, moving, cleaning, amended rates, power and phone charges. Moving fees and establishment costs (not including real estate agents’ fees) can add up to at least $5,000. Real estate agent’s fees can be more than $15,000
Overall, whatever you buy or sell consider the following before you act:
- do your homework
- be realistic
- communicate with your family and partner and ensure that everyone is informed.
- Try not to sell or buy when you feel pressured (unless it is a mortgagee sale and then you won’t have much choice).
- There is always a buyer for a house that has the right price.
- There is always an abundance of houses for sale in your price range.
Take your time and you just might discover a way to grow a small, fruitful money tree in your back yard.
Need more help? Check out:
- Buying or Selling a House - Those that care least, usually succeed
http://www.keepingthefaith.co.nz/financial_planning_faith_blog_050608.cfm
- When is a good time to buy a house?
http://www.keepingthefaith.co.nz/financial_planning_faith_blog_200508.cfm
Buy my new book Faith Speaks Money Talks to discover how to:
- Decide what is important to you
- Get a better life with the 7-week money challenge
- Smash the spending habit so you have more money for what you really want
- Stop money pouring out of your life
- Handle the big money decisions with ease
- Buy property with confidence and without going broke
- Make the most of KiwiSaver
See previous blogs:
Don't sweat the small stuff.
Can you grow a money tree?
What's holding you back?
Money or your life - which has more value?
The seven secret thieves
Five questions to change your life
Find that spark
Switching lives - what would you choose?
Who can I trust to help grow my money?
How to swim in a sea of money
Life can be unfair
The rule of happiness
No way to live
Anyone can be good with money
Best ways to warm up winter
Who wants to be a millionaire?
The secret of wealth
Keeping your money safe
Having it all
Win an all-expenses-paid trip for two to Europe (Part 3)
Win an all-expenses-paid trip for two to Europe (Part 2)
Win an all-expenses-paid trip for two to Europe (Part 1)
Make a change for good
A recipe for a happy Christmas
Nothing else matters
Rage, rage against the dying of the light
Make a wish come true
Buying or Selling a House – Those that care least, usually succeed
When is a good time to buy a house?
Sleepless Nights in a War Zone
Transitions - more life or more of the “same old, same old” boring stuff?