Not My Mother

I’ve been thinking a bit about Dog’s situation over at Dog Ate My Finances. She lives in a crappy rental property that she hates, but she can’t afford the kind of house she wants, and she doesn’t want to buy a “generic townhouse” that she’d have to sell in a few years time. And she seems to have a mental block on upgrading to a different rental property – I think she sees it as dead money. So she’s talked herself back into staying where they are, even though the apartment is old and doesn’t fit her needs, and her cars keep getting broken into. She doesn’t see any other option — or more accurately, she’s written them all off.

It reminded me of our situation when we moved back to Australia. We were looking to return in December 2007, just in time for Christmas. At the time the rental market in Melbourne was going crazy; there were news reports that for any property that came up you’d have 50 couples swarming the place and there were rental auctions going on. It was mad. We had friends looking at the time and they said it was true.

Now, as it happened, my work moved me to London, so they were organising moving me back, and as part of that we’d get 4 weeks’ accommodation in a serviced apartment when we arrived. But what we didn’t get was any assistance to find a place to live (unlike when I arrived in London; I guess you’re expected to know your home town yourself). It was all down to us. How would we manage to find a place that was available within those 4 weeks? Also, we wanted to buy a house, but that would mean trying to line up the end of leases with the purchase – and with the market as it was, no one needed to take on a short term lease.

So it made sense to buy before we got back. The only thing was, the kind of property that we wanted was a larger house maybe 30-40 years old, which needed some work. And it’s really hard to judge that over the internet. We tried sending family round to look at a few places, but it didn’t work. They didn’t understand what we were looking for, so they’d come back and say “Oh my god no, there is bright red shagpile carpet everywhere, run!” Well, I don’t know about you, but I like bright red shagpile, and maybe the rest of the house was okay. But the point was, buying a house you’d be happy to live in is a completely subjective matter. It depends too much on gut feel and instinct, you can’t trust it to other people, and they don’t want you to either, in case they get it wrong and you end up hating them as well as the house.

But you know what is easier? Buying an investment property. Then it comes down to cold facts: is it close to transport? Does it have a garage? Is it low maintenance inside and out, with enough bedrooms and bathrooms for your target market? We decided that we wanted an investment property eventually, so why not buy it first? We wouldn’t have to LOVE it, it just had to be good enough for us to live in for maybe a year while we looked for the house we really wanted.

So we looked, and within a couple of weeks had found something that met our needs exactly. Better yet, it was in a largish development of similar properties so we could see what they’d been going for. So we bought it. Settlement was in December, a week before we got back in the country. Perfect.

As it happened we loved the house, which was good because it soon became clear that we’d been a little unrealistic about being able to buy a second house within a year. (It took us TWO years to get to that position.) Now, we live in the second house and rent out the first one. And we love the second house.

So this is what I think Dog should do – stop thinking about it in terms of a Mansion or Nothing. Buy the generic townhouse, but with an eye to it being a good investment down the track. It’s a reasonable compromise, if you do the research and are smart about what you get. And the mortgage would be a lot less than the mansion’s, and it wouldn’t be the dead money renting something else would be.

Disclaimer: I don’t live in the US, so I’m not completely familiar with the ins and outs of purchasing properties there. But Dog’s already been approved for a modest sized mortgage, and people are still buying properties. It doesn’t matter what she intends to do with the property a few years down the track, she’s planning to live in it now.