Is owning a home the kiwi dream or is it a trap? After 17 years of selling real estate, and investing in real estate from the age of 22, I’ve come to realise that purchasing your first home is not the be all and end all of life. Owning a home does not necessarily equal success in this day and age, and you will often end up comparing yourself to Johnny down the road, whose wealthy father or family inheritance helped him buy his first home.
What is the Kiwi Dream?
The kiwi dream is designed to keep the middle class, middle class. There are definitely a few different ways to go about it.
The best way is the one most people know about, yet most don’t follow. You purchase a home with at least 3 bedrooms, maybe a sleepout, rent out those spare rooms to cover the majority of your mortgage payments and you rough it for a few years. The earlier you do this, the better, as you will still have the option to have flat mates helping to pay the rent, as opposed to doing it later in life when children are in the mix. Then, once you have gained enough equity and saved more money, you purchase a second, and then third, investment property and rent those out long term so that capital is built over time. This builds wealth. Personally, this is what I did. I purchased a property with a sleep out in a cheaper suburb of Christchurch, and rented out all the bedrooms for a few years, including that sleep out, and the study. I didn’t purchase new furniture and I didn’t allow myself any luxuries. I was then able to purchase another investment property and rent that out, and so on.
Another option is to purchase a property where you can do some upgrades and add capital. This is always a good choice if you work in a trade industry, or know people that do. Ideally, if you manage to purchase while the market is in a downturn like we are experiencing now, then you can do quite well. Once the work and all the upgrades are complete, you can get it revalued and ideally borrow against it for the next investment, etcetera.
The other way is when you feel the social pressures to get onto the property ladder. Your friends are purchasing nice homes with help from their family, so naturally, you want to keep up. You put all your money into a home that’s a lot nicer than just entry level, you purchase new furniture and whiteware, and get a dog for good measure. You also tackle some renovations and make plans for a nursery; the ultimate kiwi dream. This will always be a risky option as you then become stuck in debt up to your eyeballs and never get out of the rat race.
My advice to anyone looking to purchase their first home is to do your due diligence, and purchase within your means. Take advice from the right people. Developers and investment firms that sell apartments and townhouses can have an ulterior motive. Find out the market value and how the investment firms paid for those apartments. You want to make sure that you have looked into the market, potential capital growth, the rental return and all the additional costs. It has to work for you.
I’ve spoken about my predictions for the real estate market in New Zealand before and I would suggest that the next 12 months would be a great time to buy. When the market is on its way down, with interest rates as high as they are, the market gets flooded. As Warren Buffet, one of the best investors of all time said, “be scared when people are greedy and be greedy when people are scared.” You don’t need to buy the nicest house on the nicest street just yet. Your first home should be a plan/strategy to build wealth from there.
Feel free to contact us anytime to find out what the market trends are and keep an eye out for our future predictions. We are here to help and provide advice on what’s in your best interest. At Najib, we know what’s important.
Do what others aren’t willing to do today, in order to have what you want tomorrow.
Some books that I would recommend are:
Think and Grow Rich – Napoleon Hill
Rich Dad Poor Dad – Robert Kiyosaki
The richest man in Babylon – George Clayson
Unshakeable – Tony Robbins
Some articles that I have previously written: