Homed’s new series, Who owns the houses, will look at who is buying New Zealand’s houses, who already owns them and who really benefits from this trillion-dollar asset.
OPINION: There are a lot of pros and cons to owning your own home, but to me the pros do outweigh the cons significantly.
Many young people have the dream of owning their own home some day. This goal seems to be getting more and more difficult now with prices rising so rapidly. The deposit needed to purchase even a basic home gets larger and larger, and wages haven’t kept rising at the same level.
For some people, it’s not as important to own their own home, though.
When I bought my first property at age 24, it wasn’t a home to live in. It was actually a rental property. The rental property was two three-bedroom flats in Stokes Valley, Wellington.
I wasn’t that fussed about owning my own home at that time. Getting ahead financially was far more important to me than having all my money tied up in the place I lived. If I was starting out again now I would do the same, looking for ways to leverage my money by investing into rental properties.
It wasn’t for quite a few years later that I bought a house specifically to live in, I just didn’t see much point in doing so.
Once I had established a base of wealth through property, a good solid foundation, then it made more sense to buy a home to live in.
Since then, I’ve bought a further six properties that have been my own home, at the same time owning a considerable amount of residential rental properties. This has now also moved into buying commercial properties.
So what are the advantages and disadvantages of owning your own home?
Firstly the disadvantages.
1) Your own home is not an investment, nor is it an asset. It is a liability, not generating any cash for you. That is unless you can Airbnb it while you go away, or have an income(s) from it like we do on our orchard. For most people, their net worth, or wealth is tied up in the place they live and they have nothing else. To me, this is not smart at all.
2) You pay for all the rates, insurance and maintenance needed on your home.
3) If you have a mortgage against your home, interest rate rises will affect your mortgage payments.
4) If property prices fall, you lose that amount of equity in your home.
That’s about it, so not that many disadvantages.
The advantages are as follows.
1) Security. You won’t ever be concerned about your landlord possibly selling one day, and having to find somewhere else to rent and move to. If you own the home, you are your own landlord.
2) Freedom. Owning gives you a sense of satisfaction and freedom that renting will not give you.
3) Each payment you make to the bank (on a principal-and-interest loan), your equity goes up. Rent is dead money.
4) If property prices increase, the equity in your home also increases
5) Your mortgage payments are generally fairly predictable (with fixed interest rates for a given term). When renting a property from someone else, your rent can be increased every six months and you don’t know when that will happen, or by how much.
6) You can make alterations to your own home, adding rooms, putting in a new kitchen, bathroom, other decorating etc.
7) If you are a keen gardener, you can make a garden to your own likes and as big as you want. You don’t have to ask the landlord for permission.
8) Many landlords will not allow pets into their properties. By owning your own home, you do not have this restriction.
9) If you want to move overseas for a year or two, you can rent out your property while you’re away and the rent may cover some if not all of your mortgage payment.
10) You may also just want to go away for the odd weekend here and there and decide to aArbnb your property for that time.
11) Some people also get in a flatmate or two which can also help to pay your mortgage.
So, in summary, the benefits of owning your own home far outweigh any negatives. However, for young people wanting to get ahead financially, it makes more sense to buy rental properties first (unless you buy your own home and get flatmates in).
When you have a good base or foundation in place, then look at buying your own home to live in. Just don’t sell your rental properties to do it.
Graeme Fowler is a property investor and author.