When should newlyweds buy an apartment?

In between eating latkes and lighting candles – I didn’t mention any sufganiyot that I managed to avoid – I had a couple of meetings with parents who have children who are engaged to be married.

Both sets of parents were pushing their kids to buy an apartment within the first year of getting married. They said paying rent was a waste of money, that it’s better to take out a mortgage and buy an apartment, and that 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 tell you how angry I get when I hear it.

Start on the right foot

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 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 the Jerusalem neighborhood of Rehavia or near Tel Aviv’s Dizengoff Square.

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. If you can’t afford to rent in Tel Aviv, don’t. It’s that simple.

Sell at a profit

“You should always buy an apartment because you can sell it in a year or two for a profit.” This is a fallacy propagated by people with short memories. Yes, the Israeli real-estate market has been on fire for the last six to 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. Buying an apartment with the fallback position that if the mortgage payments are suffocating, you can turn to sell it, 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 down, 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.

According to Rebecca Blacker of U.S. News & World Report, “Buying a home is likely the largest single purchase you will make in your lifetime. There are many factors to consider when making such a large investment, from ongoing costs to location and more. Keep in mind, however, that buying a home is not solely a financial decision. If this is the place where you want to settle down, raise your children, or set down roots, a community you want to join, and a property you can customize and make your own, then you should not worry about timing the market perfectly. If you can see yourself being happy there for many years, the profit you make on the sale sometime down the road becomes less important. Renting is a great option if you are unsure about the location, want more flexibility based on where you are in your life, or simply do not have the time or money to invest in homeownership and all the upkeep it involves.”

By following a common-sense and responsible approach to living smart financially, when you eventually buy a home, 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.

aaron@lighthousecapital.co.il

Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.