To Invest or not to Invest

[Whal]

A long story short, the last few years I've been working overseas, but have savings of around $90k (+ $30k in kiwisaver) that I've watched sit dormant in term deposits etc. I'll be coming back to NZ to work in Gisborne for 1 year, before likely heading back overseas for another stint.

I have the option of buying a property in Gisborne, where prices are still within the range of my deposit and single income, live in the house while I'm there and then rent it out when I leave. Or the other option to just leave the money in bank deposits etc. where, at the moment, I'm effectively losing money, until I settle in NZ permanently.

Property investment is my long term goal (am currently a builder by trade) and I would appreciate any opinions or ideas that anyone could throw at me?

[Nick G]

I'd do it. Go hard on the mortgage while you are there. BUY A RENTAL PROPERTY AND NOT A FAMILY HOME :-)

[OnTheMove]

If I could work NOT in a big city, ie I had another career, id be living in a smaller city and buying too.

Keep in mind Auckland median house price down turn and plateau and the very real potential for a major dip in the market, perhaps try mitigating your risks and find a property that will take a substantial lower price than asking.

Then as Nick said, pay it off FAST. If you hold any potential loss will be restored, it might take 20 years, but any crash will eventually come back to bought price, but if you mitigate risk by offering substantially less ie 20%, then I think its unlikely you will lose 20% in Gizzy. And the rent you obtain even if the market takes 15 years to rebound will outweigh the flatline you will get with banks. Basically bank interest keeps your $1 worth $1 in 10 years $1 under your mattress will go down by compounding inflation. But your House wont lose value and you will get substantial rent. A bit like bluechip shares and their yearly payout to you, shares dont always go up, but leading brands always provide cashflow. The problem is you cant leverage the money, or at least its very risky to do so, to put say $400k in shares. The only situation I am in the ASX is via my Aussie Super Index Funds. Which have recovered from the 2008 crash, they are doing 15% at the moment, but over 12 years they are only at 6% due to the GFC.

Houses that will lose big money in a crash are expensive holiday homes and homes people have paid over Market Value for. Our price to affordability alone is enought o dictate houses just arent obtainable in some areas. The government is trying to get Kiwis buying NZ homes with crazy schemes etc, but the reality is the one thing that will put NZ property back in line will be a correction in prices. People cannot afford more than what they earn just for rent which is the median income vs median house price in Auckland.

To help pay it off while you are living there, would you be comfortable with renting your rooms out to flatmates? Run a ruley tight ship and usually that goes ok.

The only thing I know of Gizzy is you only have to go 2 streets further and you are in dodgville from paradise. Im sure you know this better than I OP.

[OnTheMove]

Also on a practical level, once its paid off you will ALWAYS have either a home or an income from your home to pay rent if living elsewhere.

The easy test is to look at the rental price for your projected area of interest, ie say $600 for 2 bed in Auck. Then do an interest only calculation on what that $600 house is worth to buy, for me my old 2 bed would have made more sense to buy as interest only was $480pw. Of course there are other anomalies to take into pricing, but its a rough guide as to when its better to buy than rent.

Part of the reason right now is a good time is due to interest rates. If they were 18% then $600 rent makes much more sense.

Also if you rent it out, that rent increases your potential borrowing power, although you still need 20% deposit, so to get a bigger property you will need to save a bigger deposit. But then you now have either a freehold home or rent to help you save that bigger deposit. ie "Climbing the Ladder" :-).

You can use part of your first home as deposit but that will lower your borrowing power but likely it would be worth it if say you saved another $90k and used 20% of your first home as additional deposit, you are likely still going to be able to borrow more than you need/want for your next project.

Keep in mind renovations seldom add value to a property over market value, they just help sell it. Which is much easier in a boom market. Although its much easier to get 20-30% price deduction in a falling market.

If you can buy a house that you can pay off quickly, ie 5-10 years, I think its hard to lose.

Dont take anything I say as advice, its just opinion based on my own experiences here and Aussie. There are much better qualified guys on here than I to give you advice.