Investing In Something Other Than A House
Recently I asked for YOUR questions and I had a heap of responses, so I thought that today I would tackle one of them head on. It’s housing related, a topic that is constantly being talked about in New Zealand and one that I generally try to avoid. And I’m not sure exactly why I suddenly feel the need to tell you as a disclaimer that, in case you had not worked it out already, I’m not an authorised investment advisor, these are just my opinions! So here goes:
Discussion on the housing market has been exhausted... I personally would love for someone to tackle alternatives to purchasing a home in NZ! I'm 30 and newly married, and of course buying a house would be fantastic, but it is becoming less and less obtainable. This being said, the thought of being in such high levels of debt is terrifying, I would much rather invest my savings!
My Attempt At An Answer:
Well I own a house Brittany and I’m a bit fed up with home ownership if I’m honest. We tried to have as small amount as possible tied up in this completely illiquid asset but have failed. Mainly because the price of our house has gone up. And I’m a weirdo for thinking that this is not the best thing ever and I’m acutely aware that my increasing house price restricts others like you and your husband from entering the market. Congratulations on your recent marriage by the way!
Your question opened up a discussion in our house of “what would we do if we had our time again and found ourselves in your situation?” So today Brittany I’ll give you the benefit our hindsight. We kind of blindly stumbled into owning a house. We had moved from Wellington to CHCH so Jonny could start up a design company with some friends so the lending for our very first house was based on my income alone, because his income was unpredictable at the start and mine was more than plenty to satisfy the bank. But times they certainly have changed and owning a house is now a strategic decision years in the planning, requiring two good incomes and often a lot more besides. But the cost of our first house in my old neighbourhood of Dallington, Christchurch is now a moot point because our old suburb barely exists now:
Our land and all of our neighbours land around us was acquired by the government because it was deemed unstable during/after all of the earthquakes Christchurch endured. Eventually we were paid out for our house which was then bulldozed after 2.5 years of insurance drama, stress and hassle, and to be fair we received more money than if we had have sold it in a normal situation. But did I mention drama, stress and hassle? In total, about five long years of our lives were made so much more difficult because of our house. Which is one of the main reasons why I’m so NOT in love with housing in New Zealand and one of the reasons why I sought a way to invest somewhere else.
When we left Christchurch we rented for over a year while we rebuilt our house down in Alexandra and that prolonged our pain because the first house we rented was also for sale - so we had to pay top dollar whilst maintaining a show home for prospective buyers. After two months this property sold and we had to move to a second house, also for sale, that constantly had people traipsing through it who were never going to buy it.
So, I kind of see housing as a necessary expense, but ultimately a bit of a pain in the ass. It’s not all roses in the garden and breakfast in bed.
So, if we had our time again, given the ridiculous amount of debt people are taking on to get into property we probably wouldn’t even bother trying to own a traditional house but would instead set up some pretty kick ass monetary goals putting all the things I have learned in the last ten years into practice:
Budget meeting with my husband. With wine. We would get out every statement, every invoice, every insurance doc, every credit card and go through them with a fine tooth comb and a large pair of scissors. We would then set a monthly budget and allocate spending to each item and remove anything and everything that didn’t serve a useful purpose but we spent money on anyway. We would take it back to the bare bones and allocate money each month to each need such as groceries, rent, transport, insurance etc. Now we know how much money we have and exactly where it is going each month. Every month we would review our budget and run our finances like we were running a company.
I would then make sure I was getting paid enough for the work I was doing and the same goes for Jonny. If not, I would be asking for a pay review and if that’s a dead end I would find a better job and get more income coming in. It’s so important to be in the right job and to be paid fairly for it. You spend a lot of time at work so you have to love it and it has to be worth trading your time for cash.
I would set up a bank account where I built up a lump sum of money in case either of us lost our day job or decided to take a break from work; say six months of living expenses (that I worked out when I did my budget). If I could not trust myself to keep my sticky mitts of this money I would open up an account in a completely different bank and cut up any eftpos card they gave me AND throw away my online login details too. Now, the only way to get to it is to visit the bank in person! If I could find one. In my own life this fund has saved our bacon a few times and now I can’t sleep at night if I don’t have it there.
I would contribute at the very least 3% of my wages to my KiwiSaver or if I was self employed I would make sure I was putting at least $20 a week in there so that my own contributions were over $1,042 each year. My husband would be doing the same. I would make sure I was in a growth fund, with low fees and good returns because I’m young and awesome and have time to ride out any bumpy financial markets. I would make sure to get the government yearly bonus and would understand that this money won’t be touched for another 35 years. Just contribute, forget about it and let it grow. I’m NOT saving for a house deposit here, I’m saving for my retirement. I’m going to be saving and investing in other places too.
Then I would establish a fun account. Because I am 30 again and awesome I will probably get invited to weddings in inconvenient places (was your’s in an inconvenient place I wondered as I wrote this?) - and I’d make sure I could cover this stuff. These are not surprise events as WE ALL get invited to weddings in inconvenient places, so I would plan for this in my budget PLUS I would make sure I’ve got a little bit extra in there so we can enjoy ourselves too. But I won’t be accepting any invitation unless I’ve budgeted and planned for it and I would always keep one word in my vocabulary as well when I received an invitation. “NO”. Just because you were invited does not mean you HAVE to go! Money in this account could be used for far more useful things that are meaningful to you.
Now that my day to day needs are taken care of I would start investing the leftovers into, you guessed it low cost index funds. Before I lifted a finger I would take a bit of time to educate myself about these (hint: I have written many blog posts about it and also check out JL Collins: The Simple Path to Wealth as he explains them perfectly). I would educate myself so I could provide a counter argument to my friends who will inevitably say “the stock market is risky and you will lose everything”. Reading a couple of good books written by intelligent people will assure you of the opposite. Every month without fail I would have an automatic payment purchasing something like the NZ Top 50 and the US 500 through SmartShares or a fund through SuperLife. Now for some time shares have been on the up and up but there will always be times when markets will go down down down.
In fact, the very morning I wrote this blog post I received an email from another Happy Saver which said “I’ve noticed that my returns on Vanguard are greater than my interest payments on my mortgage. I know this may not always be the case but it also makes me feel in more control over my finances.”
Newsflash! Home ownership is not the only wealth building tool available to us. And because I’ve read books and blogs about it and perhaps even sought out a financial advisor to speak with (who is NOT being paid on commission to pedal their products) I know that I’m in this for the long game, I’m looking 10 to 20 years into a future of steady accumulation, of buying into my funds whatever the markets are doing. And I’ll be reinvesting every single dividend that comes my way because I don’t need this money for my day to day living, I’ve budgeted for that already, I’m just accumulating wealth here. I’m not selling a single one. BUT when push comes to shove I could if I wanted because with shares you can sell just ONE and keep the rest, unlike a house where you have to sell the entire thing.
Now I feel like I should be writing a lot more here about where to invest because just like there are a plethora of mortgage brokers and banks out there to choose from, the same is true with companies you can invest with. But I’m not, I’m keeping it simple: Just invest in a low fee fund that invests in New Zealand and also one that invests in the U.S. and/or the world. Because once you have done a bit of reading you will be in a position to make the right decision for your own situation. I promise!
But where the heck am I going to live?
If I found myself in a city with stupid property values I would be Google mapping in search of the closest exit and I would leave. The math does not stack up when people pay dumb money for houses that they want to rent out and they are obviously also going to want dumb money for rent too. Extended family and friends may not be transferrable but jobs, belongings and pets sure are and New Zealand is an amazing country filled with opportunities wherever you look. Just start looking and when you get there give your family and your friends your new address. They WILL come and visit you. A move to another town may get you cheaper rent and who knows, it may even get you into a house after all, IF that’s what you want.
Ooo and another option to throw into the mix that I’m in love with at the moment is the Tiny House movement. $50,000 to $100,000 could get you your own house on wheels: www.livingbiginatinyhouse.com
Just a thought!
People tell me there are some decent landlords out there and having rented for about 15 years prior to buying, although I met some terrible landlords I also met some fantastic ones. Find the fantastic ONE who has the smallest, warmest nicest house with the lowest rent you can find and sign up to being the best tenant EVER. Mow the lawns, clean the windows, heck even clean the oven and generally look after the place as if you did own it yourself because renting is cheaper than owning a home. We only hear the bad renting tales, but there are a lot of good homes and a lot of good landlords out there too.
In the last year of home ownership we have replaced our dishwasher, washing machine and microwave. Two weeks ago one of our central heating pipes leaked, so we now have a hole in the bathroom wall that needs repairing and there is a pending bill to fix it. Our front door lock has broken and we are awaiting the repair bill (and the fecking repairer to finish the job I might add), the insect screens we have on each window just needed fixing and that cost $200. We pay $45 a week in rates and $50 in insurance. Each summer we paint a side of the house and replenish the gravel on the driveway. It’s all dollars. Of course the one giant expense missing from above is a mortgage repayment, which we don’t have, thank goodness. If we borrowed $400,000 we would pay $780 a week to the bank AND also all of the above costs as they popped up.
Don’t get sucked into the hype that owning a house is cheaper than renting. In my humble opinion it simply is not. Everything above (except maybe the microwave) is a landlord expense. Owning a house is a massive tie and a massive drain on resources, particularly when you have a mortgage. Rent on the other hand may average $400 a week. Some say paying rent is dead money but I on the other hand say paying hundreds of thousands of dollars in interest to a bank is DEAD money that I would have to toil away hours of my precious life at work to afford.
Pay your rent on time and enjoy living in your home and then save and invest your guts out.
Don’t settle into paying rent and spending the rest of your income while throwing your hands up in the air saying “poor me, I’ll never get ahead”.
If you can, form a great relationship with your landlord yet enjoy the feeling of knowing that if you decide to up sticks and move cities then you have the flexibility to do it. And enjoy attending that wedding in Thailand or Scotland that you have paid cash to attend. I hope at least one or two of your mortgage laden friends can join you there. And a hot tip for a wedding gift, buy the bride and groom a copy of The Barefoot Investor by Scott Pape.
So, knowing what I know now, owning a house is not the be all and end all and I would be paying rent in a house or living in my tiny transportable house somewhere. I would be sticking to a budget I had created and investing a large chunk of our pay each and every week without fail. Now, the one thing I’m good at is saving and without thought for what I’m saving up for I just can’t help but tuck money away each and every week and that’s what I would be doing if I were in your shoes. Pay your rent, power, phone, food bill and insurance and then save as high a percentage of your pay as you possibly can. Stop frittering away your cash.
Month in month out, save and invest, save and invest. Always be a saver first Brittany. One day you might check out how much you have put away into these investments and you still might not know what you are going to do with it. But it is going to give you OPTIONS.
I would be investing carefully and sitting back and watching the effect that reinvested dividends and compound interest has on my savings over time. One day you might decide the time is right to buy a house or you might find that having investments gives you a whole lot of options you never thought of like:
Freedom from work
Freedom from debt
Freedom to start a family
Freedom to travel
Freedom from worry
Freedom to help others
Freedom of time to do what you choose because you will never get your time back.
Hefty house prices may have closed the home ownership door to you at this moment in time but it has opened up several others at the same time. Your options are endless Brittany and to me they sound a heck of a lot more exciting than the drudgery of paying a mortgage for the next 30 years.
I hope that answered your question?