Please reality-check my "retirement plan"

[TANSTAAFL]

Personal background:

I am a 35yr old expat living in the USA. I've spent nearly every day of my life working in front of a computer from breakfast to bedtime, and it's killing me. I desperately want to quit, to stop wasting my life, and pursue more creative (probably not profitable) interests instead. I've felt this way for years, but I just couldn't give myself permission to do anything else until I've secured my financial freedom. I hope maybe that time has come.


Financial background:

If I liquidated my life here, my net worth should amount to about $650NZD at the current exchange rate. Looking at realstate.co.nz, it appears that could buy me 4 or maybe 5 modest homes in the cheaper centers like Wanganui or Invercargill, with a little cash left over for emergencies or unexpected maintenance. I could live in one then rent out the rest, or rent out all of them and apply part of the proceeds toward the mortgage on an additional property elsewhere.


Advice needed:

While I have been back to visit (and loved it), I have not lived in NZ since childhood, and perhaps naive about the true cost of living and the legal/tax environment there. I've been reading a lot, but that's no substitute for experience. What I hope to hear from you Gurus is reassurance that it's enough for someone to survive on indefinitely. I am not a materialistic person, all I need are the most basic necessities (how I've managed to save so much). Since I've heard mortgage/rent takes up about 1/3 of most households expenses, it seems like owning 4 or 5 cheap houses would set me up forever. Am I missing anything?

I understand that this is not how most of you operate, that investors use loan leverage to buy as many properties as possible and maximize longterm capital gains, but my overriding concern is liveable cashflow. I don't need to retire rich, I need to retire now.

Words of wisdom would be sincerely appreciated.

[jimO]

my retirement plan revolves around winning Lotto

[eri]

move to auckland

buy as many cheap apartments in the central city as you can afford cash

manage them yourself

[drelly]

I think you need to figure out what retiring means for you before you can make any decisions. If it means doing nothing and living on a low income, then I guess you could do it. But it sure wouldn't be the high life. You'd be vulnerable in the sense that you'd have little spare income to deal with a crisis once your savings were gone. In reality, I think that even if you could retire and do nothing, you'd get bored and want to do something anyway. I think you'd be better off finding something that you enjoy doing here and trying it out for a while before making any long term investment decisions.

[TANSTAAFL]

If it means doing nothing and living on a low income, then I guess you could do it. ... You'd be vulnerable in the sense that you'd have little spare income to deal with a crisis once your savings were gone.

Thank you for the response, but those parts are all I'm interested in. Will the math work? The second sentence sort of contradicts the first; either the rentals are generating enough to cover life's essentials, or they aren't.

I questioned how much personal story was required. It sounds like I may need to justify myself some more. I hesitate to tell strangers this, because it is so misunderstood, but I have Asperger's Syndrome. I won't try to explain everything that entails here, but essentially I have both social and sensory issues that limits my options and affects my priorities.

I live like a monk. I do not go to restaurants (allergies), do not go to the theater (crowds), do not go to concerts (loud), do not drink or smoke (yuck), do not buy status symbols (or comprehend status) ... None of this should matter, but what I am trying to communicate is my plan does not require sacrifices or depriving myself, I simply do not want what other people can't imagine living without. So don't include those costs in your analysis. Or children.

For me, retirement means the freedom to finally just be myself, not being forced to fake anything anymore, to live a quiet isolated life without unreasonable daily demands (that's what property managers are for), to tinker with hobbies, lose myself in my obsessions, without too many distractions or interruptions from other people. That's all I need, but I really desperately need it. I'm exhausted and looking for an escape.


IIRC, the median annual income in NZ is around $35K. So if I invested $600K in property, it would have to net 6% annually to match a typical Kiwi. Is this an unreasonable expectation?

[sbw]

IIRC, the median annual income in NZ is around $35K. So if I invested $600K in property, it would have to net 6% annually to match a typical Kiwi. Is this an unreasonable expectation?

Personally I wouldn't call $35k a comfortable wage to live off... maybe if you didn't have a mortgage on your own home and as you describe yourself... then possibly you could do it.

6% net return is defiantly achievable. You'd just have to do your research and barhin hunting on deals. From what I have read (not experience) most of the smaller towns (as you describe) do have a higher net return, but often have longer periods of vacancies.

buy as many cheap apartments in the central city as you can afford cash

See many great cash flow+++ of these!

[DazRaz]

Remember rates, insurance and repairs. Occasionally a property will need a large item replaced like a kitchen or roof. This needs to be factored into your calculations. Plus with using a property manager, 8% of the rental income is heading their way. Is part time work a possibility?

[Shane D]

Let's apply some math to your question regarding your "retirement plan". Let's use Invercargill for the following example

Note: I have zero experience with Invercargill and are basing these numbers off a quick search of Trademe.

You have $600,000 NZD to spend on rentals

Let say we buy 4 x 3bdrm houses like this example for $140,000 plus small renovation i.e. paint, carpet, certains http://www.trademe.co.nz/property/re...-434548638.htm

Weekly Rental $$$
A quick search of rentals in Invercargill shows a rough average for 3 bedroom homes of $250 a week for $1,000 a week total for your 4 houses

Yearly Rental income
$50,000 (based on 50 weeks a year tenanted)

Yearly Expenses (I will need some help from the PT Team here)
$4,000 - Property Manager fees (based on 8% of rent collected)
$3,000 - Insurance for 4 houses (I could be underestimating this)
$6,000 - Rates for 4 houses total (please help here, I have no idea of Invercargill rates)
$8,000 - Property maintainence and upkeep for 4 houses
$3,000 - Income tax of rental profit (total wild guess here as I don't know your investing structure)
$24,000 total yearly expenses


Total Annual Income to you after expenses
$50,000 - $24,000 = $26,000 ($500 a week)

So you need to do a stint living in NZ (Invercargill) to see if you could live on $500 a week.

Most people would be stretching it to live on $500 a week.

Shane

[freezinhot]

my retirement plan revolves around winning Lotto

Good luck with that one, you and 4 million other people.

[TANSTAAFL]

That breakdown is exactly what I needed to see Shane, the effort is enlightening. Those expenses are higher than I anticipated, so I'm disheartened, but that's why I need to run this idea by experienced locals who can set me straight.

So a take home of $500/week isn't enough to survive in NZ? That surprises me too. A public healthcare system and ACC eliminates our burdensome private insurance costs, so what is eating up all of a Kiwi's wages? Can you (or anyone else) mock up a bare-essentials household budget for me?

[Shane D]

That breakdown is exactly what I needed to see Shane, the effort is enlightening. Those expenses are higher than I anticipated, so I'm disheartened, but that's why I need to run this idea by experienced locals who can set me straight.

So a take home of $500/week isn't enough to survive in NZ? That surprises me too. A public healthcare system and ACC eliminates our burdensome private insurance costs, so what is eating up all of a Kiwi's wages? Can you (or anyone else) mock up a bare-essentials household budget for me?

TANSTAFL,

I just threw out some ballpark figures to get the example running. Hopefully someone experienced in the Invercargill market will step in and refine the numbers.

My advice would be to look at ways to increase the revenue side and decrease the expenses sides of the equation.

for example
Increase revenue (rent)
- look for houses that can be converted into 4 bedrooms easily to increase rent
- convert garage into sleepout or rumpace room
- Buy multi-income properties to increase rent per property

Reduce expenses
- Rates can be reduced if you buy multi-income properties. i.e. rates for a home an income on the same section costs less than 2 x standalone properties
- Look at blocks of flats to reduce rates and you should alos be ale to negotiate a reduction in property manager fees due to convenience of all properties in one place

- Insurance bulk discount rates can be negotiated for multiple properties

Shane

[drelly]

Hi TANSTAAFL,

You'd need to make sure the properties were in really good condition before you started renting them. You wouldn't want to be hit with a big re-roofing bill in your first year or two. It might be worth considering a quality multiple income property like a few units, as this could reduce maintenance costs.

[Maccachic]

Quick question are you a New Zealand citizen / resident? As getting residency is rather hard.

[ream]

So a take home of $500/week isn't enough to survive in NZ? That surprises me too. A public healthcare system and ACC eliminates our burdensome private insurance costs, so what is eating up all of a Kiwi's wages? Can you (or anyone else) mock up a bare-essentials household budget for me?

I'd say there's no reason why you couldn't live on $500/wk with the lifestyle you describe. In fact if I was doing that, I would struggle to spend that much. When we first immigrated we lived on about $2k/mo for 2 adults. That was because we had to though, not because we wanted to. That included rent at $250/wk IIRC and didn't allow for luxuries such as cinema (which wouldn't worry you). Power, firewood (especially if deep South), food, car (if you want one) would be your main expenses.

[Maccachic]

What about putting the money into a fixed term deposit, if you want to go low risk / low stress?

There seems to be a few people raving about the US market maybe it would be worth looking into that, since you are already over there and with a good property manager and good returns may be do able from NZ?