Downsize the digs...

Downsize the digs...

Being retired at age 43 gives me a lot of time to think (I will go back to work but at the moment I’m enjoying my retirement). It also gives me a lot of time to come up with genius ideas such as this:

Wall made from biscuit tins for our yet to be completed outdoor seating area.

Wall made from biscuit tins for our yet to be completed outdoor seating area.

And this:

Coffee table made from old beehive boxes.

Coffee table made from old beehive boxes.

Both are irrelevant to investing, but nice don’t you think?

I need a sounding board for these innovative and outstanding ideas though and that is my husband. He is across the living room from me, working at his computer and trying to do some actual paid work. He often has headphones on to drown me out but more often than not we find ourselves having a coffee, and having a chat. We can do this in our newly created outdoor space while using our new coffee table. Result!

A conversation on repeat at the moment in our whare is this:

What if we sell the almost four year old house we are sitting in and:

A. Buy a section and build a very small house OR

B. Buy an already built small but much cheaper house

Why? Then we could add this additional cash to the investments we already have and create a greater income stream from investment returns. It is not enough to live on but it is heading in the right direction. Our house is going up in value but it is not money I can use to buy the groceries each week right?

I don’t like having so much cash tied up in a house. The reason is because when we lived in CHCH and our house was red zoned because of the earthquakes. It took almost three years to get paid out by our insurer. All of that money was completely tied up and we could not move on. We could not buy anywhere else so had to sit in a broken home while we waited and waited until someone else decided our fate. NOT a good feeling. I would much prefer our house to make up about ¼ of our investments and at the moment it is about ¾. I do realise that we must be the only people in New Zealand who are trying to get OUT of property!

Those headed to retirement in their 60’s and 70’s are often sitting on their biggest asset but lack money in the bank to pay the bills and feed the cat. Common advice is for them to downsize their home and release some cash. We have some good friends who are doing this exact thing at the moment. With the sale of the house the mortgage was gone and they are currently building a house half the size of their last one - and there is now money in THEIR bank. I’m proposing we do the same, just a heck of a lot earlier - because we are both still extremely youthful ;-)

We are avid watchers of the Tiny House Movement but tiny is too tiny for us so we would have to create the “Small But Not Tiny” movement instead. We won’t get as much kudos, but it would at least show we tried.

I’ve also been on a big minimalist drive for the last year and have been steadily getting rid of stuff. So, I think I could fit into a smaller joint. There is however a bit of work to do on the other two. Think: messy nine year old and husband with a jam packed workshop.

Our dog has it sorted as he already has his own tiny house. He actually might be onto something. All his needs are taken care of. Shelter, water and food and well positioned to the sun:

He's got it sorted...

He's got it sorted...

BUT is downsizing at this time actually financially worth it? Central Otago property prices have boomed as Aucklanders blow that joint and those from far and wide head our way snapping up anything with a front door and thereby decreasing our house supply and upping the demand and prices. We have benefitted from this in our GV. It went up $95,000 in the latest three year round. Its GV is now $520,000 but looking at recent sales of the same size house (same GV) in our neighbourhood they have been selling for around $600,000.

That is (alarmingly) good news for us (until our rates increase of course).

BUT, how high will it go? We have seen our prices jump in the last year in particular. Where is the limit? I’ve got no idea and nor does anyone else I suspect. Of all our investments the house is making the most money - but of course it is not making us cash we can use, until we sell it.

Whether we built a house (we have done it once and enjoyed it) or bought an existing house (we have had a doer upper before) I estimate that conservatively we could free up between $120,000 - $200,000 which we could then invest.

So that I can deal in facts I looked at Term Deposits because you have a fixed rate of return. As we know, rates are almost as low as the temperature gauge in Ophir in July BUT the general consensus is that they are predicted to increase over the next few years. We could invest for short terms and would then need to keep rolling into new term deposits to take advantage of the (fingers crossed) INCREASING rates.

The sad statistics are as follows:

  • Invest $120,000 at 3.75% for 9 months (with compounding interest paid at six months) after tax would give us… $2,784
  • Invest $200,000 at 3.75% for 9 months (with compounding interest paid at six months) after tax would give us… $4,640

THIS IS SO NOT GOING TO WORK AS A STRATEGY RUTH!

Our total grocery bill for 2016 was $9,700 so those returns are not going to really cut the mustard (or buy enough mustard).

As my husband succinctly put it - you need to free up a $1,000,000 Ruth. That’s not possible!

Although past returns do not predict future returns our house has to date been going up in value at a greater rate than this proposed term deposit, hence the love other people have with property investment I guess. I do get it.

Owning your own home is a mix of looking at the numbers and looking at the emotional satisfaction it brings you. For us it is not worth the upheaval at this point in our lives, we do love our house and are managing to save into other investments each month which in turn create income (just not enough to live on). So, that’s that; I might go out and plant some lettuces. Looks like we may be here for some time. I will stop going on about it now, time for a new conversation...

Put the kettle on, I’m feeling another outstanding idea coming on. Maybe we could build a tiny house on the front part of our section and play houses in that for a while? And rent out the ‘big’ house....

Happy Saving!

Ruth

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