First secret
When you buy the house you start to build equity in the property. Over the years the property generally increases in value and the bond amount owed decreases as you make your monthly repayments. You may find that you have managed to save a substantial amount of money over five or ten years simply by owning the property you live in.
Second secret
If you’re a tenant, you’re paying for someone else’s bond. Stands to reason. Tenants usually have a clause in their rental agreement that says they will pay more every year to rent the same home. Rent goes up 10% every year, but the house didn’t get 10% bigger, did it?
Home owners agree to a price upfront for a 20-year agreement. They will pay the same monthly instalment amount over the term of the contract, all things remaining equal.
Tenants pay a market related rental amount in their contract. So, while the owner pays the bank the payment, he agreed to in 2012, the tenant pays for what this property is worth in today’s terms. Eventually the rental amount completely covers the costs of the bond and provides the home owner with a regular monthly income that increases every year… plus the equity also accrues to the home owner.
Why do properies increase in value anyway?
In my opinion, the reason that property values increase so much over a short period of time is because demand outstrips supply. The demand for homes is more than what is available in the market, and every day there is a bidding war going on to secure property as new buyers come into the market and as real estate investors rally to purchase more.
The second major reason is inflation. The textbook description of inflated is “the erosion of the buying power of capital over time”. In others words, money is losing its purchasing power over time and this is why everything becomes more expensive as the years march on. Property is a hedge against the falling purchasing power of fiat currencies like the money we get paid at work. Truly, cash is trash.
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Why people don't buy propery sooner
Here are some observations I've made on why some people sit on the fence when it comes to buying property.
Lack of information
Lack of information
They just don’t teach this stuff in school. Don’t ask me why. I didn’t make the rules. However, if you’ve managed to read this far, that excuse has gone out the window. You have the information now.
People think they can’t afford it
People think they can’t afford it
Bond calculations are done using financial formulas to arrive at the premium breakdowns. The average person cannot just break out a financial calculator or excel spreadsheet and work it out. This reason no longer applies to you as you now have access to an interactive calculator that crunches the numbers for you!
Bad credit record
Bad credit record
Most times your credit isn’t really as bad as you think it is. The bank also regularly shows leniency because they want your business and the loan is secured with the property anyway, so worst case they can sell the house to get their money back.
Don’t you make the call for the bank that you won’t get the bond. Send in your application and let the bank decide. When I got my bond, I wouldn’t have given myself the bond. It is better to be rejected than to not have attempted at all.
Apathy, fear and procrastination
Apathy, fear and procrastination
Some people just don’t care. Life’s more comfortable at mom’s house. Don’t let that be you. Parents develop a new found respect for you when you live in your own home. Believe me.
Some people are scared to death that the bank will reject them… others are afraid of making such a big commitment. Twenty years just sounds like such a big commitment… you gonna need a place to stay anyway, right? You may as well own it.
Others still have the habit of putting important things off till tomorrow. Always tomorrow. You fast forward twenty years and they’ve paid off a bond on a property they don’t even own. It’s a recipe for disaster. How many thousands have your paid in rent that could have been used to pay for a property that is in your name?
No credit record
No credit record
Sometimes you find yourself as an entrepreneur operating in a cash only environment.
Speak with the bank to find out how to can build a record that will satisfy them that your cash flows are strong enough to qualify for a bond.
These people will gladly help you with a bank account and facilities to get you started on building a credit record.
Actually cannot afford it
Actually cannot afford it
If you’re not working, well then, your first steps are pretty self-evident and fall outside the scope of this post. However, there’s a property at almost every income point.
It might not be a property you may want to live in but it does represent an opportunity to get into the property market as a landlord and investor, and if managed properly, could become a building block to acquiring the home, lifestyle and financial freedom you deserve.