Many New Zealanders think buying a home is part of living the Kiwi dream. It’s a measure of financial success, along with owning the Bach, Boat, Beamer and the BBQ. However, it’s very important to reflect on whether owning your own home is the right move, or if you’re actually better off renting. The dream of homeownership has been largely oversimplified. It’s important for people to realise the responsibility, risk and rewards that can come from taking the leap into buying your own home.
People in favour of buying usually argue:
- If the value of the home appreciates (as most people would have experienced over the last decade), you’ll be in line for some juicy capital gains.
- Once you’ve paid off the mortgage on your home, it’s yours. You own the asset, and the cost of your housing from that point on reduces significantly.
- You have more stability and certainty around your housing situation, and don’t have to deal with a landlord.
While people who prefer to rent will say:
- You don’t have to stress about the ongoing maintenance, repairs, and responsibility of owning the property.
- Renting in this market may be a lot cheaper than the mortgage repayments and costs of owning a similar home in the same area.
- Buying a home ties up your savings, and has an opportunity cost. i.e. your money may be better off invested in shares or your Kiwisaver.
All of these factors will vary in importance depending on your situation. What’s most important to consider is that buying a home can indeed be a bad financial move, but for most people, it isn’t. The best way to figure this out is to crunch some numbers, and double check your underlying motivations for owning a home.
Good reasons to buy your first home:
- You’re looking to live in the property for a reasonable amount of time, and it’s ownership will bring you and your family joy and happiness.
- You’re looking for a way to build wealth, and recognise purchasing a home that you can add value to by doing a bit of DIY, while living in it, before moving onto another project.
- You’re committed to paying down your debt, and know you’ll be happy living in the area for 5+ years.
Bad reasons to buy a home:
- Society tells me it’s the right thing to do
- My friend bought a property and I have FOMO!
- Property prices have Doubled in the last 10 years, I’m missing out...
Ask yourself “How would I feel if the value of my first property didn’t change over the next 5 years, or potentially dropped by 5%-10%?”
It’s important to understand that nobody can predict the market, and the only way to benefit from being in the market, is being able to ride out any short-term fluctuations. If you’re looking to buy your first-home as a get rich quick scheme, you’re probably doing it for the wrong reasons, and continuing to rent MAY be the better option.
The other thing to consider, is that many people want to live in an area they can’t afford to buy property in. In Auckland, inner city suburbs like Ponsonby & Mt Eden aren’t affordable for most first-home buyers, yet are very desirable places to live. Don’t forget, you could always keep renting in one area, and buy your first home as in investment, a term commonly referred to as ‘rentvesting’. While Kiwisaver & a Homestart Grant may be more difficult to acquire for an investment, this is still an option.