Barefoot Investor: Why you shouldn’t rush into the property market

Most young people want to wave a magic wand and be able to buy into the housing market as soon as possible, but Barefoot Investor shares three reasons why you should take your time.

Let me tell you about the smartest 23-year-old woman I know.

Her name is Samantha, and she’s worked out a way to get a private 30-minute financial strategy session with me every single month. How much does she pay me?

Nutt’n. In fact, I pay her $40!

Then again, she does wield sharp scissors and often holds a razor to my throat, so I’m the very definition of a captive audience.

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Over the past few years I’ve heard about her on-again, off-again, on-again boyfriend (it’s my version of MAFS (Married At First Sight) … each month I get a new episode).

Yet over the past 12 months they’ve gotten engaged, and are now looking to buy.

She put in my lap a brochure from a new development on the ‘fringe’ of Melbourne.

“This joint looks more like the back of the mullet than the fringe”, I quipped, as she snipped dangerously close to my ear.

“How much are you looking to spend?”

“We’re looking at places around $450,000, and we’ve saved up $50,000”, she said.

“That’s a great start, but not enough.”

“Well, we’ve already got pre-approval from the ANZ!” she countered.

“Did you have to submit pay slips or any other documentation?” I asked.

“Er … no.”

That, I explained, is the equivalent of a swipe right on Tinder: you’re not getting married, you’re simply in the ‘maybe’ pile.

Barefoot had some cutting financial advice for his hairdresser.

So I challenged her to spend the next month playing the field, and she dutifully went to two banks and a broker.

The response? “Yes … no … and maybe.”

Still, Samantha is in a rush, and she wants me to wave my magic wand and help her buy as soon as possible, “while prices are low.’’

But here’s the interesting thing, at 23, she has absolutely no concept of an economic downturn.

In fact, even her parents, who are in their early forties, have never experienced a recession in their adult lives.

Let’s put that in perspective:

In the 1991 recession, Aussie property prices had their longest fall on record: 20 months of decline.

So how does that compare to today?

Well, nationally prices peaked in September 2017, which means they’ve been falling for 17 months.

However, I’d argue that this slump is only getting started, for three reasons:

First, the Reserve Bank suggests there are almost $500 billion in interest-only loans that are due to be reset to principal-and-interest in the next five years, which their analysis suggests will cost the typical borrower $7,000 more a year.

Second, interest rates are already at historical lows, so small rate cuts add up to only small repayment savings.

And besides, it’s unlikely the banks will pass on the full rate cuts.

Finally, the upcoming federal election will likely bring a new government, and with it changes to negative gearing and capital gains tax (CGT).

As a result of all these factors, banks are being very cautious with their lending … and it’s the banks that ultimately control property prices, based on their willingness to lend.

Plenty of people who bought in the past two years are copping a buzzcut.

That’s why my advice to Samantha — and anyone else with less than a 20 per cent deposit — is simple: there’s no rush!

Tread Your Own Path!

Barefoot shares the best thing to do with an engagement ring after a marriage has ended.

Q&A

ENGAGEMENT RING GOING CHEAP

TAMSYN ASKS:

I am currently filing for divorce. My ex-husband rampantly cheated on me with a bunch of random women and then had an affair with a graduate at his work. Beyond humiliating! So to my question: is there is anything sensible to do with an engagement ring once a marriage has ended or should I just sell it for a pittance? I know you are not in the business of pawning jewellery, but I thought you may have been asked this question before. Any advice would be greatly appreciated.

BAREFOOT REPLIES:

I’ve written a lot about ‘reject rings’ in the past: they’re great for the buyer … not so good for the seller.

If you’re getting divorced the ring could form part of the settlement.

However, it’ll be valued at its resale price, not it’s initial purchase price or what it’s insured for.

So here’s what I’d do — First, I’d talk to your ex-husband and explain that, while he’s hurt you deeply, there’s a part of you that will always cherish your relationship.

And, because of the history you have, you’d like to keep the engagement ring as a memento of what has been a major part of your life.

Second, I’d get him to agree to let you keep the engagement ring from the settlement pool ‒ because of its sentimental value.

And then?

Then you hock the bloody thing for whatever you can get, and spend the money on two things:

(a) A very good lawyer

(b) An ‘eat, pray, love’ holiday.

After all, who needs a memento of this mongrel?

BLOW THE WHISTLE

ALICE ASKS:

I’m 15 years old and do not have regular work, though I do umpire netball in the winter months which earns me about $15 a game.

I’ve just started Year 10 and will have a lot on my plate school-wise and do not want my studies to suffer.

Would you suggest I get a part-time job or just keep up the casual netball work?

BAREFOOT REPLIES:

Good on you for (a) taking interest in sport, (b) earning some money out of it, and (c) emailing the Barefoot Investor for financial advice while you’re still in high school ‒ you’re awesome!

Yet I still want you to get a part-time job.

I view a part-time job as one of the most important ‘real life’ high school classes you can take.

Seriously, how else do you get the experience of selling yourself in an interview, working in a team, taking orders from a boss, and learning about setting up bank accounts, paying tax and eventually investing super?

Your parents should pay Ronnie McDonnie for the educational experience!

Besides, you only need to do a few shifts a week, so it won’t interfere with your studies, and you can pare it back when you get into your final years of school.

Good luck!

Companies marketing themselves as the ‘perfect Barefoot Side Hustle’ have no affiliation with the real deal.

THE PERFECT BAREFOOT SIDE HUSTLE

JENNY ASKS:

I have come across a mob who are selling themselves as offering the “perfect Barefoot Side Hustle” with what they call “matched betting”.

Is this is a scam? Or am I just a little too risk averse?

BAREFOOT REPLIES:

Thanks for bringing this to my attention.

I have a standing rule that I don’t Google myself, or read anything that’s said about me (good, bad or otherwise).

It keeps me (marginally) sane.

Yet what gets me all ‘Mark Latham’ is when insurance salespeople, mortgage brokers, financial planners, Bitcoin scammers, and even blokes on Tinder (!) use my name to sell their … junk.

Let me be clear: I have absolutely nothing to do with a gambling service.

Someone’s doing a hustle but it sure ain’t me!

YOU’LL BE PROUD OF ME, BAREFOOT

NATALIE ASKS:

I wrote to you when I was on maternity leave in October 2017 to tell you I had racked up a $17,000 credit card debt (you published my response as ‘Zero Balance Is a Trap’). Well, since returning from maternity leave I am down to my last $1,000 payment, I am winning at work, and I even have a new role! I followed all your steps ‒ I paid off $25,000 in debt, negotiated a pay rise, and paid for a wedding, all while managing a two-year-old. Honestly, Scott, you have changed the game for me and my family!

BAREFOOT REPLIES:

I didn’t do any of this, you did. A lot of people reading this right now who are just like you were may say their situation is hopeless. But you are inspiring them to get up and do something about it. What you’ve done at the start of your child’s life is to change your family tree ‒ from debt and disappointment to cash and confidence. Don’t underestimate just how much influence that will have on your kids. You Got This!

If you have a burning money question, or you want to win a fight with your hubby, go to barefootinvestor.com and ask a question.

If you have a burning money question, go to barefootinvestor.com and #askbarefoot.

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice.

Originally published as Barefoot Investor: Why you shouldn’t rush into the property market