Starting small can be a smart financial move. There is a lot to be said for intentionally buying well within your means. Although, in a world where bigger is considered better, this can be difficult.
Most of us are familiar with the capital growth scenario below. This example can encourage people to take out a large loan where they can only afford to make the minimum repayment.
However, we have seen plenty of amazing examples where new home owners have started off with a smaller loan size and worked hard to put as much of a dent in their loan balance as possible.
The following example in the table below illustrates our point.
Taking a ‘stepping stone’ approach where you build up equity in a modest property and then use that capital to upsize into a more expensive home might be a sound strategy. Certainly, this method does mean that your ‘dream home’ may take longer; however, you minimise the risk of having a large debt.
If you would like specific advice about the pros and cons of starting off modestly, versus buying a more expensive property, please give your Smartline Adviser a call!