Why it’s OK to choose number two

Settling for second best is nobody’s preferred course of action, but it should be considered in today’s wild real estate market, says personal finance writer Anthony Keane

IT’S heartbreaking to hear stories of young buyers continually being outbid for their dream homes because others are offering $50,000, $100,000 or more above what they can afford.

Fair value goes out the window in a property boom, and when the bank won’t lend you more money – or bidding higher will leave you financially stretched – buying real estate can seem like an impossible dream. But it’s not. Millions of Australians have used property to provide financial security and build wealth, and many of them did it by initiating plan B, C or D. Settling for second best might mean a choosing cheaper home, a cheaper suburb, a bigger mortgage or moving back with mum and dad for a while to save with the hope further price rises don’t outpace those extra savings. It’s good to remember that today’s inflated house prices are unlikely to seem so inflated a decade or so from now, and a huge home loan shrinks over time as balances drop and equity within people’s homes climbs.

Other options for stepping on to the ladder include: · Parents providing deposit help or going guarantor for a portion of the home loan (only done after seeking professional advice). · Partnering with a family member to break into the market together. · Widening the property search into areas previously ignored. · Putting property purchasing on hold but having some exposure to rising markets through fractional property investments and real estate investment trusts.

I’ve been looking at interstate property investment in recent years and have already had to settle for second-best options when it comes to suburbs and prices that are available and affordable.

But that’s OK, because in a decade or two it won’t matter that we built 5km further out from the CBD, because outer suburbs eventually become middle suburbs and lifestyle preferences change over time.

Second best shouldn’t be shunned. The only time it becomes dangerous is if paying too much for a property puts you under so much financial stress that you can’t sleep at night. That’s unhealthy, and no amount of money is worth sacrificing your health for.