Your investments: Newlyweds - Get on solid financial footing before buying an apartment

money (photo credit: REUTERS)
(photo credit: REUTERS)
Earlier this week I counseled a couple who are getting married in a month. They said both sets of parents were pushing them to buy an apartment within the first year of marriage. The parents said paying rent is a waste of money, it’s better to take out a mortgage and buy an apartment, and property in Israel always goes up, so they are guaranteed to make money.
I can’t tell you how many times I hear this, and I can’t say how angry I get when I hear it.
Start off on right foo
Much like a building, for a marriage to succeed, it needs a strong foundation. In financial parlance that means being debt-free, having a well-funded emergency fund, savings for a down payment and a budget. I don’t know too many young newlyweds who fit that description. I generally think at least a year is needed for a couple to be married before they should start thinking about buying property. It is the biggest purchase they will ever make, and to pressure them to make it when they hardly know each other is a grave mistake.
Rent is not a waste of money
Believe it or not, renting is not the end of the world.
Even in Israel, where there is no real long-term rental market, it still makes sense for a young couple or anyone who doesn’t have enough money to afford a down payment. It’s not money flushed down the toilet. You actually get something in return for that money: a place to live! When I point this out I inevitably get the response, “But rents are so high, how can a young couple afford it?” The simple answer to this question is that you do not have to live in Rehavia or near Dizengoff Center.
There are plenty of places to live that are more reasonably priced. We need to stop making all kinds of excuses and start taking responsibility for our finances.
If you can’t afford something, no matter how much you want to have it, don’t buy it. Ridiculous, populist government solutions like capping rental increases are not the solution and will actually exacerbate the problem (but that is for another column). If you can’t afford to rent in Tel Aviv, don’t. It’s that simple.
Sell at a profit
The notion that “You should always buy an apartment because you can sell it in a year or two for a profit” is a fallacy and is propagated by people with short memories.
Yes, the Israeli real-estate market has been on fire for the last six or seven years. But do we remember 2001-2003 when prices dropped significantly and you couldn’t give away the best properties in Rehavia? No investment goes up in a straight line forever, none. To buy an apartment with the fallback position: “If the mortgage payments are suffocating, you can sell it” – that sounds just like what happened before the subprime bubble popped in the US. That didn’t have a happy ending.
What to do? If your goal is to eventually own an apartment, as with any goal, start taking the steps to achieve that goal. If you put every last shekel into an apartment purchase, and then the air conditioning breaks, what are you going to do? Make sure that you are living within your means, saving money every month and paying down debts. Keep in mind that as you age, your earning power will increase. Then save for a respectable down payment so that your mortgage won’t be too big a burden.
By following a commonsense and responsible approach to living smart financially, when you eventually buy an apartment it will be a blessing and not a curse.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc., or its affiliates.
[email protected] Aaron Katsman is a licensed financial professional in Israel and the United States who helps people with US investment accounts. He is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.