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  1. #1
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    Default first home buyer advice

    Hey everyone,

    I am looking for some advice from people on here who have much more experience and knowledge than me with the NZ housing market. Here's the situation:

    I currently have basically all my money in the NZX. I'm fairly happy with how things are and rate of return (~10% average per year through divvies and cap gains). However I am considering purchasing a house to leverage my money, diversify, and reduce housing costs (over the long term). From what I can see, the monthly repayments would be similar to the rent I pay every week. The numbers:
    For $400,000 3 bedroom house with $80K deposit (20%):
    5-year fixed rate mortgage @ 4.39%: $369/week
    Rates: ~$25/week
    Insurance: ~30/week
    Maintenance: ~$30/week
    Total: $454/week

    Seems like a no-brainer given the cost is similar to renting, but I'd also be building equity at the same time. Could also rent out the other 2 rooms to offset the mortgage. It seems a bit too easy, so I feel like I must be missing something. I can't trust what mortgage brokers say as they are obviously biased. I'd love to hear some thoughts on the above and if I am over simplifying or missing something altogether.
    Last edited by sanctus671; 08-06-2019 at 09:36 PM.

  2. #2
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    Quote Originally Posted by sanctus671 View Post
    Hey everyone,

    I am looking for some advice from people on here who have much more experience and knowledge than me with the NZ housing market. Here's the situation:

    I currently have basically all my money in the NZX. I'm fairly happy with how things are and rate of return (~10% average per year through divvies and cap gains). However I am considering purchasing a house to leverage my money, diversify, and reduce housing costs (over the long term). From what I can see, the monthly repayments would be similar to the rent I pay every week. The numbers:
    For $400,000 3 bedroom house with $80K deposit (20%):
    5-year fixed rate mortgage @ 4.39%: $369/week
    Rates: ~$25/week
    Insurance: ~30/week
    Maintenance: ~$30/week
    Total: $454/week

    Seems like a no-brainer given the cost is similar to renting, but I'd also be building equity at the same time. Could also rent out the other 2 rooms to offset the mortgage. It seems a bit too easy, so I feel like I must be missing something. I can't trust what mortgage brokers say as they are obviously biased. I'd love to hear some thoughts on the above and if I am over simplifying or missing something altogether.
    If your OE is done go for it.Rates insurance a bit light depending on where you are buying.Even if tight worth it in long run.

  3. #3
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    Even without capital gains or paying down principal, mortgage repayments v income quickly start to look attractive. Unless income drops a lot.

    Possible help here for first home buyers.

    https://www.govt.nz/browse/housing-a...ur-first-home/

  4. #4
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    I've worked out the #s and from a tax point of view, it's a no brainer to buy NZ real estate. Now that capital gains tax is out of the issue for NZ homes, it's safe to say there's certainty where housing prices will go in the long term future (UP). Don't take my word for it, just go ask the banks why they will allow people to leverage into a home but won't lend towards buying shares on the NZX? and i'm speaking banks will have no problem lending over $1M if your income supports the payments, but they won't even lend $100 towards a direct investment in NZ shares without all collateral requirements. etc.

    If you have a home stay, the income from that is also tax free. There's just so many freebies that IRD allows that i'm surprised why people consider with the likes of Kiwi Saver.

  5. #5
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    Quote Originally Posted by sanctus671 View Post
    Hey everyone,

    I am looking for some advice from people on here who have much more experience and knowledge than me with the NZ housing market. Here's the situation:

    I currently have basically all my money in the NZX. I'm fairly happy with how things are and rate of return (~10% average per year through divvies and cap gains). However I am considering purchasing a house to leverage my money, diversify, and reduce housing costs (over the long term). From what I can see, the monthly repayments would be similar to the rent I pay every week. The numbers:
    For $400,000 3 bedroom house with $80K deposit (20%):
    5-year fixed rate mortgage @ 4.39%: $369/week
    Rates: ~$25/week
    Insurance: ~30/week
    Maintenance: ~$30/week
    Total: $454/week

    Seems like a no-brainer given the cost is similar to renting, but I'd also be building equity at the same time. Could also rent out the other 2 rooms to offset the mortgage. It seems a bit too easy, so I feel like I must be missing something. I can't trust what mortgage brokers say as they are obviously biased. I'd love to hear some thoughts on the above and if I am over simplifying or missing something altogether.
    Yes I think it makes sense even better if you can add some value to the home(Paint, upgraded kitchen, bathrooms, etc) i.e make sure to buy with good bones-- brick/roughcast -steel roof, good sun, good location, your far better of paying a few dollars more to secure a much lower maintenance cost going forward etc ... interest to where you are looking to BUY have done many property transactions over the years.

    Also, rates are trending downwards go for the sharpest rate you can find ASB offered me 3.85% 2yr + $4550 cash (for 600k debt re-finance)

    Also great idea if you only need one room even lookout for 4brd many time not much more in cost but can add several thousand more in income pa ... you could rent 1-2 rooms and airBNB the 3rd-4th

    In hindsight I wish I held onto my first property was only 24yrs old build two story 3brd upstairs -2 bed flat underneath back in the early 2000's in Queenstown total loan was only 500k!! look at it now https://homes.co.nz/address/queensto...re-place/1jjLp

    Should have just rented out all the rooms and flat would have paid all the out goings and these days the flat would bring in $500-600pw
    and instead of paying for a room and rent I could have just paid down the loan ... but young and dumb took a quick 200k Cap gain at auction ..
    People don't have ideas, ideas have people

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    Quote Originally Posted by JBmurc View Post
    ....

    In hindsight I wish I held onto my first property was only 24yrs old build two story 3brd upstairs -2 bed flat underneath back in the early 2000's in Queenstown total loan was only 500k!! look at it now https://homes.co.nz/address/queensto...re-place/1jjLp

    Should have just rented out all the rooms and flat would have paid all the out goings and these days the flat would bring in $500-600pw
    and instead of paying for a room and rent I could have just paid down the loan ... but young and dumb took a quick 200k Cap gain at auction ..
    You have to remember, where else did you put that $200K gain for a return? This is why I think investing in NZ real estate is so important with a clear advantage over other areas of investing ; namely NZ shares. You don't hear of those selling up their home to buy shares but you do hear those selling up shares (ie converting the gains of Kiwisaver into the 1st home program) to buy real estate.

    Hindsight is always 20/20 and you can never turn back time. The same can be said on how much gain certain shares have gone over the past 15 years. I remember when Amazon.com was at $15/share... (shortly after the dot com crash) now around $1800 USD.

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    As the mortgage is paid down the borrowing power of the mortgage can be used to buy shares as well

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    Quote Originally Posted by kiora View Post
    As the mortgage is paid down the borrowing power of the mortgage can be used to buy shares as well
    You've got to be kidding. No bank is going to lend on the equity of the house AT comparable mortgage rates. Sure at 10 or 15% but not at 4% that we see for home mortgages. Even greater consideration, who would assume that risk of paying 10% on the loan hoping to earn 15% or 20% on shares? That's not how the lending market works. Because if that was true, then the whole lending industry would not care about mortgages and instead, buy shares directly for the greater returns. They don't lend because the risk is extremely high compared to lending on houses. Consider a business plan on what the banks require to lend. But it's highly probably the person that earns their own income from a business will have no problems buying a house. Buying shares is the last thing they would consider in terms of investments. It makes me wonder why people are in Kiwi Saver to begin with if they don't own a home over their head.

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    Quote Originally Posted by SBQ View Post
    You've got to be kidding. No bank is going to lend on the equity of the house AT comparable mortgage rates. Sure at 10 or 15% but not at 4% that we see for home mortgages. Even greater consideration, who would assume that risk of paying 10% on the loan hoping to earn 15% or 20% on shares? That's not how the lending market works. Because if that was true, then the whole lending industry would not care about mortgages and instead, buy shares directly for the greater returns. They don't lend because the risk is extremely high compared to lending on houses. Consider a business plan on what the banks require to lend. But it's highly probably the person that earns their own income from a business will have no problems buying a house. Buying shares is the last thing they would consider in terms of investments. It makes me wonder why people are in Kiwi Saver to begin with if they don't own a home over their head.
    If you mortgage your house, how would the bank stop you buying shares with the proceeds? Also, margin lending rates are significantly lower than you think.

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    Quote Originally Posted by kiora View Post
    As the mortgage is paid down the borrowing power of the mortgage can be used to buy shares as well
    Exactly what I have done .. the way I see it is my share trading company invests the bank's funds at a cost of the going rate as I have good equity I'm currently looking to refix the 250k @ 3.85% 2yr fixed ... I'm confident I can do better than 3.85% pa

    Also looking to receive a 4.5k cash bonus for a shift to another bank .. but must stay with that bank for 3yrs have received over $10k in cash over the years
    People don't have ideas, ideas have people

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    Thanks for the replies everyone! Very helpful and reassuring to read these.

    For interest rates, my concern is if something like 08/09 happens again where they shoot up to 10+% for several years. Given that we are in one of the longest bull markets in history with interest rates current at an all time low, it seems like the risk for that is reasonably high over the next 5 years. It means a weekly repayment of $454 would be closer to $1000 which would be pretty hard to manage. That's why my thought on fixing the rate for as long as possible would reduce that risk if something were to happen in the next 5 years. I'm obviously all for a lower interest rate, but would like to hear your thoughts on the risk behind it if there is any.

    Also, how were you able to get the cash bonus'? is the 10k from switching to different banks?

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    Quote Originally Posted by SBQ View Post
    You've got to be kidding. No bank is going to lend on the equity of the house AT comparable mortgage rates. Sure at 10 or 15% but not at 4% that we see for home mortgages. Even greater consideration, who would assume that risk of paying 10% on the loan hoping to earn 15% or 20% on shares? That's not how the lending market works. Because if that was true, then the whole lending industry would not care about mortgages and instead, buy shares directly for the greater returns. They don't lend because the risk is extremely high compared to lending on houses. Consider a business plan on what the banks require to lend. But it's highly probably the person that earns their own income from a business will have no problems buying a house. Buying shares is the last thing they would consider in terms of investments. It makes me wonder why people are in Kiwi Saver to begin with if they don't own a home over their head.
    Easy, drawing down mortgage,using their equity , an investor is able to benefit from rise in house value and share value.At a cost of 4-5% interest/year turns a good return into supernova

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    Quote Originally Posted by mfd View Post
    If you mortgage your house, how would the bank stop you buying shares with the proceeds? Also, margin lending rates are significantly lower than you think.
    The bank won't stop you. I'm talking the reality aspect of borrowing on a line of credit (or against the house you live in) AND investing it into shares. The bottom line is you need a return on shares consistently over the long term that betters the going lending rate (currently around 5% or 6% floating). Look at it from the bank's perspective. Why would they lend at 5 or 6% when they could buy shares directly and earn say 10 or 20% a year? It's because it's far easier to extract the $ from the working person while having the ability to own the house in a foreclosure.

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    Quote Originally Posted by kiora View Post
    Easy, drawing down mortgage,using their equity , an investor is able to benefit from rise in house value and share value.At a cost of 4-5% interest/year turns a good return into supernova
    Actually it's not that simple. In times of kaos and financial market crisis, you get sky rocketing interest rates while plummeting share prices (and you can say good bye to the dividends as most companies would be under water). The prudent reliable method in NZ has always been... to invest in another house than to buy shares because housing prices have a predictable outcome regardless of the economic times. The same can not be said with shares, especially NZ ones.

    It seems people have already forgot about 2008... Bad enough to leverage against against... even worse to leverage and buy shares for the long term. If you're going to margin, all the traders I speak to only do so for a short term because the daily rates are way too high.

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    Quote Originally Posted by SBQ View Post
    The bank won't stop you. I'm talking the reality aspect of borrowing on a line of credit (or against the house you live in) AND investing it into shares. The bottom line is you need a return on shares consistently over the long term that betters the going lending rate (currently around 5% or 6% floating). Look at it from the bank's perspective. Why would they lend at 5 or 6% when they could buy shares directly and earn say 10 or 20% a year? It's because it's far easier to extract the $ from the working person while having the ability to own the house in a foreclosure.
    I'm not sure why you quote floating rather than a sub-4% fixed interest rate. If you have a setup where this is deductible against your share profits, it's even easier.

    Banks have a very different business model and risk profile to share investors. Your question is like asking why a bank would lend to a farm rather than just growing food for a profit, why lend to a house investor rather than just buying the house themselves and renting it out? Different entities have different motives.

    Your other point comparing share investing to property ignores the possibility of a housing crash, which have happened before, will happen again, and could happen here. Being careful with leverage applies equally to property investors as it does to share investors.

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    Quote Originally Posted by mfd View Post
    I'm not sure why you quote floating rather than a sub-4% fixed interest rate. If you have a setup where this is deductible against your share profits, it's even easier.

    Banks have a very different business model and risk profile to share investors. Your question is like asking why a bank would lend to a farm rather than just growing food for a profit, why lend to a house investor rather than just buying the house themselves and renting it out? Different entities have different motives.

    Your other point comparing share investing to property ignores the possibility of a housing crash, which have happened before, will happen again, and could happen here. Being careful with leverage applies equally to property investors as it does to share investors.
    And especially as houses in NZ are at record highs + record high av. household debt..low NZ incomes etc

    Of course the equitiy market can be horrible in the crash .. I do remember the GFC (I had over 300k in loans in the market) but thats why I have my Sharetrading structured in a company... still got a few tax credits to use up from the GFC.

    But property ian't perfect (just ask some CHCH home owners)

    Also Good luck selling your NZ property in a major market downturn when several others are for sale on the same street and new R.V's come out with 20% reduction in value and wipes out all your equity.

    Also you can buy an ETF or Gold company that will do well during a market crash ..make money while other investment are going down in value.
    Last edited by JBmurc; 10-06-2019 at 10:44 PM.
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    Quote Originally Posted by sanctus671 View Post
    Thanks for the replies everyone! Very helpful and reassuring to read these.

    For interest rates, my concern is if something like 08/09 happens again where they shoot up to 10+% for several years. Given that we are in one of the longest bull markets in history with interest rates current at an all time low, it seems like the risk for that is reasonably high over the next 5 years. It means a weekly repayment of $454 would be closer to $1000 which would be pretty hard to manage. That's why my thought on fixing the rate for as long as possible would reduce that risk if something were to happen in the next 5 years. I'm obviously all for a lower interest rate, but would like to hear your thoughts on the risk behind it if there is any.

    Also, how were you able to get the cash bonus'? is the 10k from switching to different banks?
    Generally, I received 3k from shifting banks ASB to ANZ etc ...one bank even paid me $2k to keep lending with them rather than shift
    that's how Morg Brokers make a living from cash kickback from getting the bank new business ..

    the banks make you sign an agreement that if you shifted from the bank within a period of time you must payback the cash ...I've found it use to be 2yrs now its 3yrs .... they also like you to bring your accounts across and have your income paid into one of their accounts (But I never did)

    If you are taking out a new loan to buy a house and have a good deposit I'm sure your get some cash to help pay the legals etc

    .....As to the rates we have another GFC more likely rates will go even lower not higher as all that does is make the matter worse ..
    I was paying 7.5% in 2007 didn't go higher after 08 now did it ,, the Central bank Financial system is all about Growth at all costs and keeping the debt fueled bubble from popping just look at Japan where the central bank is the biggest holder of BONDs and Now A Top-10 Shareholder In 50% Of All listed Japanese Companies..... we are all going to turn japanese IMHO

    No way any NZ Govt is going to allow interest rates to head higher with the amount of debt held buy not only everyday kiwi voters but companies and councils Dunedin has over 200mill in debt ..whats Aucklands ??
    People don't have ideas, ideas have people

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    Quote Originally Posted by SBQ View Post
    Actually it's not that simple. In times of kaos and financial market crisis, you get sky rocketing interest rates while plummeting share prices (and you can say good bye to the dividends as most companies would be under water). The prudent reliable method in NZ has always been... to invest in another house than to buy shares because housing prices have a predictable outcome regardless of the economic times. The same can not be said with shares, especially NZ ones.

    It seems people have already forgot about 2008... Bad enough to leverage against against... even worse to leverage and buy shares for the long term. If you're going to margin, all the traders I speak to only do so for a short term because the daily rates are way too high.
    Actually I remember 2008 quite clearly & fondly.It turned out to be the opportunity of my lifetime going all in.
    Maybe next time it will be different.

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    The one BIG advantage of shares over housing is liquidity particularly in a crash.You can always sell shares & raise money in a few days in a crash whereas housing crash unless you quickly move to a fire sale price you will be caught.

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    Quote Originally Posted by mfd View Post
    I'm not sure why you quote floating rather than a sub-4% fixed interest rate. If you have a setup where this is deductible against your share profits, it's even easier.

    Sub 4% fixed rate? The 5-6% figure is the range for 'line of credit or revolving line of credit' or basically, loans for those that want to borrow against the equity of their homes, such as here:


    https://www.bnz.co.nz/personal-banki...ome-loan-rates


    NOT sub-4% rates for residential "owner OCCUPIED" as such here:


    https://www.bnz.co.nz/personal-banking/home-loans


    and I won't get into margin lending rates from brokers like Fosryth Barr etc, they're going to be a lot higher.


    Banks have a very different business model and risk profile to share investors. Your question is like asking why a bank would lend to a farm rather than just growing food for a profit, why lend to a house investor rather than just buying the house themselves and renting it out? Different entities have different motives.

    Actually no. It has everything to do with the risk level involved. The bank is not going to care what you do with the $ you borrow on a line of credit if they have the house as security. Go try offering the banks that you have shares in a company as collateral and they'll gladly show you the door. The distinction i'm trying to make is, the asset class of a house is world's apart different than owning shares of a company. When it's very clear that banks that do the lending attach different rates (ie go look at lending rates for corporate or business ventures....). If you want to make the risk adjusted distinction of using funds borrowed against the equity of the house, and then go buying shares, then the base break even rate return should be comparable to what banks would lend to corporations - so around 8% or higher. Anotherwords, the person doing this venture should be considering a break even of 5% but rather, 8% or what ever the corporate lending rate would be (to factor the risk the individual is taking).




    Your other point comparing share investing to property ignores the possibility of a housing crash, which have happened before, will happen again, and could happen here. Being careful with leverage applies equally to property investors as it does to share investors.

    No it doesn't. The extent of past housing crashes and frequency have been minimal compared to the crash in share market indices etc. As I mentioned before the 2 asset classes are worlds apart. For starters we have the Reserve Bank that put priority to NZ's real estate than any specific corporation or industry sector. It's an issue of too big to fail - the adjusting of the reserve bank interest rate adjusts purely to keep housing prices buoyant (and indirectly, the whole economy). Any such crashes in the housing market are minimised by these monetary controls. They do not care to the extent what happens on the corporate side or the NZ share market, and because of this, this is the key reason why the banks have no issues lending on 1st time buyer of a home with NO collateral, but it's a horse of a different colour when ask to lend on share equities or business ventures without collateral.


    Another thing to consider. What would be the extent of the NZ economy if there was a major housing crash? I'm talking say a 50% or 60% drop within a 2 year period? I'll tell you. Your share equities would do far worse. No one is immuned in a market crash but one thing certain is real estate fares better than any other asset class when the whole economy is turned upsidedown.

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