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Things wot I have done - Tactical Ninja

Jun. 2nd, 2011

10:51 am - Things wot I have done

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Made an appointment to find out how big the absorbed twin on my cochlea is and whether I'll need a hearing aid.

Made an appointment to see if I'm suitable for laser-eyes.

(i win at transhumanism)

Run some numbers in contemplation of attempting to buy the house I'm living in.


In a display of fiscal responsibility that our government could do with copying, I am not actually going to commit to anything till the money is safely in my bank account. I'm old and ugly enough to know just how easy it is for the coffee to end up in your lap and on the keyboard instead of in your mouth, despite everything seemingly being in order. And spending money I don't yet have isn't in my vocabulary.

Tats No.1 Rule For Life: Keep your arse covered.

But naturally I like to dream. And since the moving to Hong Kong thing went on hold in favour of finishing my degree, and since finishing my degree happens about the same time as Dr Wheel's contract in HK finishes, it seems likely that I won't be flipping burgers in the Hong Kong version of McDonalds and instead will be here with a small pile o cash.

Previous musings have concluded that I want to do two things: buy some illusion of security, and have adventures. These are not mutually exclusive but this is somewhat of a zero sum game because of, you know, there being a sum involved. That sum equals a decent deposit on a house plus a bit extra. So I could feasibly do both. The question then becomes, how much of both do I want to do, and is the house I'm living in the best choice?

I talked with the landlords a while ago about this and they were amenable, so it'd be a matter of negotiating a price. I've run the numbers on deposit vs income vs what I'm already spending, and it's likely that I could do it but that the mortgage would be getting close to the top end of what I could afford.

The thing is, I've been paying X rent plus Y half-a-mortgage for 5 years, and this house has a flat attached that has been let for the entire time I've lived here. Polly and I have a pretty stable thing going on living-wise. The house is pretty sound and has all the things I want in a home - it's low-maintenance, sunny, warm and mostly dry (although I'd probably add a heat pump on the south side), and has off-street parking. I've lived in it for 2 1/2 years and know all its foibles and I still like it.

The way the numbers add up at current interest rates, depending on what the flat was leased for I'd probably be slightly better off paying such a mortgage than I have been just renting - mostly because of the extra I'll have through not paying the mortgage on Mum's house. It's not quite as close to town as I'd like but looking around at the equivalent (essentially 4 brm 2 bthrm), I'd have to lower my standards quite a lot to get the same nearer to town and the sublettability of the flat is a real bonus. Also, Crofton Downs is a developing area and the houses up the road are posh so it'll probably increase in value.

So, on face value it seems like a good plan, and would leave me with enough play money to get my eyes lasered (not negotiable), rebuild The Kid's computer, have a trip to see Dr Wheel, and put aside a little nest egg for having adventures when my degree is complete.

However, I'm flinching somewhat at the idea of a) being that much in debt and b) committing myself for the next 25 years, complete with projected reroofing, repainting and re-everythinging that seems to go with house buying. I could just bung the money on term deposit for a while but I've been thinking about this for a year already and most advice seems to be that rent = dead money, mortgage, while owie on the interest, equals progress towards a large asset.

I'm 41. By the time I paid off such a large mortgage I'd be retiring. And I'd be committed to earning X amount of money until that happens, and that's scary.


So I'm looking for a reality check here. Am I missing something? Should I do the dreaded open home thing to look at other houses that are comparable price-wise? My kid will be leaving home in the next few years, do I really need 3 brms with a flat attached (which is still a good investment regardless)?

TELL ME WHAT TO DO!

Comments:

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From:tatjna
Date:June 1st, 2011 11:05 pm (UTC)
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(the chicken and spaghetti sounds like more fun)
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From:polychrome_baby
Date:June 1st, 2011 11:20 pm (UTC)
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I'm getting to the point where I really wonder if home ownership is all it's cracked up to be. I mean, the idea goes -

You're going to be paying money to live somewhere anyway. So, if you're paying money, you might as well own what you're paying money towards. Then, someday this ownership will magically transform into asset because you can sell it!

The problems are thus -

Well, yes, you'll own it. You'll also own the upkeep. Which means you have to personally pay for all the repairs that will be made to that home forever or until you sell it.

Selling it = profit isn't such an obvious thing anymore. Especially when one is betting on an economy that is 25 years hence. (I don't know near enough about where you live to have any sort of idea, other than to know that the entire world is changing, and who the eff knows where anything will be in a quarter century at this point?)

Will you want to stay there after you do pay off the mortgage, or will you want to sell it? Will you have enough money set aside to continue to upkeep the home you then own, or will you have to take out a new loan to do such in the future?

I mean, on paper it seems reasonable to buy a place if that's truly where you want to be forever. If not, though... It's hard to say.

I do love the idea of it including a rental property, though. That makes things nice. I don't love the idea of it being at the upper limit of what you deem yourself able to afford. That always makes me nervous.
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From:tatjna
Date:June 1st, 2011 11:27 pm (UTC)
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You have many of the same concerns that I do. My brother recently had to reroof his house and while that's something that doesn't have to happen often, it's a big expense to have to pull money out of your arse for. And I'm terrified of that sort of thing (although I've been able to plan ahead and save for car maintenance these last few years so I'm getting better).

I'm also scared of the sheer size of a mortgage. Having had a small one for the last 5 years and seeing how slowly it went down vs how much went in interest was sobering.

The upper limit of what I can afford was calculating the payments based on the interest rate going up by 2% on what it is now, and seeing that the payments for that would be about the same as I'm currently paying in rent+mortgage while maintaining an ok lifestyle. I'm wary like that, I don't like being in debt eh?

I expect interest rates to increase because right now they're low, our economy is struggling and you're right, 25 years from now it could be worth nothing. I don't think I'll want to live there forever because OMG walking up that hill when I'm old Nooooo!

So thanks
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From:vernacularity
Date:June 2nd, 2011 12:50 am (UTC)
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small thing: you say "committing myself for the next 25 years" well no or only kinda, cos if you turn around and sell the house in 5 years you cancel that out. (though of course if you sell in 5 years then you have been making payments based on 25 years so the amount of principal paid off the loan would approximately equal $100. or something.)

if your current income allows you to be paying rent for such a 5 year scenario (including the thing about no longer paying mortgage on your mum's house) then you are no better or worse off in that sense if you buy or don't buy.

however, what you did with the large chunk of the money in the meantime was stick it into a single asset. in the housing market. in wellington.

if you think you will get a decent return in 5 years on that chunk of money on that asset, well and good, that's what you do.

if you could get a better return on it by putting it elsewhere then yep-a-roonie that's what you do.

FINANCIALLY!

if you want to always have a place to come back to, then sure buy a house. But do you buy for the circumstances you would be in at that time?

I think the letted flat aspect is a side issue: if it adds onto the house price and then cancels itself out via rent, it's not really benefiting you and you always have a tenant just so you to get to live in the main house yourself.

I think you should:

-- at least LOOK at other houses in the price range you can afford.

-- consider doing something else with that money for the 5 years. at the least do the maths on a standard term deposit which is pretty sedate and low-return.




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From:tatjna
Date:June 2nd, 2011 01:06 am (UTC)
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If I put the money into a term deposit for 5 years I'd gain $23,000 in interest. The rates are lower for shorter terms.
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From:tyellas
Date:June 2nd, 2011 01:36 am (UTC)
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Agreeing with other posters who have said, yes, definitely look at other places for sale. Based on this you may decide:
* To buy a different place than where you are living.
* That you can bargain the price on the place where you are living down.
* To stay a-renting.
You probably already know that if you really want a place you will get a builder's assesment, and you can ask them, "How 'bout that roof? That paint job? What major upkeep am I looking at here?"

I grumble about my rates and the costs of home maintenance. I've run some math that showed me I would have about $2000 more in my pocket annually if I was renting. That's an overseas trip! However, 5 years after I bought, rents in my area are catching up to what I'm paying on my (main) mortgage.
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From:thesecondcircle
Date:June 2nd, 2011 03:14 am (UTC)
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Option 1: you pay rent and invest the money in something safe
Option 2: you pay mortgage and 1% of the price/year maintenance

Option 1: you gain the security of money in the bank and the ability to relocate more easily
Option 2: you gain the security of a long term home base and an asset for your old age and to pass on to your son

Note that I don't mention resale value. That's because I don't think it's wise to consider houses as investmentsthat you expect to pay back a giant return. Plus a house is the least liquid investment ever. Better to think in terms of cost outlay and security/flexibility.

I agree that you should shop around.
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From:rantydave
Date:June 4th, 2011 04:54 am (UTC)
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Houses are reasonably liquid, considering the sums involved. You should try selling a company :)
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From:clashfan
Date:June 2nd, 2011 03:15 am (UTC)
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Just today read this article in Slate: http://www.slate.com/id/2295851/

Of course, it is heavily US-centric and some of the observations may not apply to NZ at all. The bit about tax codes especially.

However, buying a house is not an investment. It is a place to live that you can do whatever you want with (within limits of building codes and such). Housing markets can be volatile; my parents lost their house to foreclosure last year. If a sense of permanence is important to you, then buy. If you like the idea of painting it however you like and replacing the countertops with something better, consider buying.

If being responsible for everything that goes wrong scares you, don't buy. If you want to be free to move in the next 5 years, don't buy--especially if you don't want to be an absentee landlord. You're probably handier than I am, but if you don't want to shell out for a plumber, be prepared to fix the kitchen sink drain on a moment's notice.

If you lived in the US, I'd feel more comfortable giving you specific financial advice. But I say sock it away in something that's a mix of safety and risk/reward. Keep some in a more liquid form, in case of catastrophe. As you get closer to retirement, move your investment mix more to the safety side of things. Them's my thoughts.
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From:danjite
Date:June 2nd, 2011 03:32 pm (UTC)
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Thinking of home ownership in the next few years.

Just last month our rental agent asked if we would like to re-up on our lease and I near-instantly went into a round of having to search for and find a heated and insulated rental and move again PTSD.

I hate renting. I hate the insecurity of maybe having to move because someone has a whim. I hate the possibility of rent increases and not being able to do what I want with the place I live, including acid-green carpets if I can afford them.

That said, I and my partner both have trade experience and like hacking on houses, so we'll buy a do'er upper and lose a year or two or three of our lives to that mad activity, have tons of horrifying expensive surprises and hopefully wind up making more than minimum for all our efforts.

But it will be ours.

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From:tatjna
Date:June 2nd, 2011 06:42 pm (UTC)
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I am a fan of acid green carpet theory also. I'm kind of used to renting and its vagaries, but yeah - I always feel limited by what I can't do in a house that doesn't belong to me.
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From:(Anonymous)
Date:June 4th, 2011 12:12 am (UTC)
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I'd talk to Jodi very carefully about the numbers, it's not so straightforward as rent == dead money.

There are a *lot* of investment options other than property, and they all have their own risk/return/flexibility profiles. Mortgages are static, and they're a commitment over a timeframe I don't think is humanly possible to really grok (we end up modifying our behaviour to suit our mortgage, which isn't necessarily in our interests).

Cynical Will says that buying a house is a thing people do because it's a thing people do.

-W
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From:tatjna
Date:June 4th, 2011 12:27 am (UTC)
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Cynical Tats tends to agree, hence the questioning. One of the questions is "Do I want more money, or do I want a thing?" And I think the answer to that is I do want a thing, but don't want to sacrifice my current lifestyle to get it.

Which narrows my options house-buying wise, but doesn't make it an impossibility. But yes, I'll have a talk to Jodi. Having been a homeowner already I'm aware of their potential moneypit-ness, and that definitely has to be factored in to any calculations. I've been advised that 1% of value per year is a rule of thumb but I'm wondering if that's realistic based on what I've seen. The Tawa house was cheaper, but Jodi's has been more expensive I suspect. Hmm..
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From:rantydave
Date:June 4th, 2011 05:01 am (UTC)
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There is nothing wrong with renting. Your rent is quite possibly less than the interest portion of the mortgage on the same place and you almost certainly come out ahead once one accounts for maintenance etc. When you rent you can bugger off and have adventures with little or no worry. Or even bugger off entirely. Why, then, would one buy a house?

* The place you'd like to live in is not available to rent.
* You believe the capital value of the house will rise in the period where you own it.
* You don't want to (or more or less can't) have to find a new house based on someone else's whim.
* The ratio between rents and mortgage payments changes.
* Otherwise you'll piss the money away and be left with nothing when it comes time for retirement.

Don't talk to me about retirement. I'm trying not to think about it.
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From:wildilocks
Date:June 11th, 2011 10:48 am (UTC)
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I suspect you're less than keen to hear my opinion, but since you don't appear to have unfriended me here I'll make some observations:

All investments are risky. Housing, long term, is traditionally one of the less risky options, and anyone who says it's high risk has little understanding of risk.

However. We are living in particularly strange times: times which have seen the average proportion of income spent on housing increase drastically in the last 20 years, and the debt to income ratio reach long-term unsustainable levels - due in large part to over-investment in housing.



"In March 1990, the ratio of Debt to disposable income was 44.7 per cent with housing debt being 32.2 per cent of disposable income and in terms of debt carried by owner-occupiers the ratio was 27.6 per cent.

By June 2010, these ratios were 159.2 per cent (total), 141.6 per cent (housing) and 99.1 per cent (owner-occupied housing). So most of the debt is owed to banks, usually for dwelling mortgages, with the growth facilitated on the supply side by the machinations of the financial engineers in the form of securitisation. The misnomer for the aggressive behaviour of these engineers is “financial innovation”."

This is AU, but the page it comes from references NZ in places too.

Many folks who bought houses any time from before the early 1990's to the mid 2000's did quite nicely, or are sitting on a pretty small mortgage. I realised significant capital gain, and invested it in my business.

With the loss in value over the last few years in several markets, there has been a slight correction: but still only slight, given the figures above - and NZ, with the lack of capital gains tax and less superannuation (Kiwisaver) is in a generally worse position, with housing expenditure as percentage of income almost certainly worse in many places.

Hasn't stopped me from continuing to try to buy a place here though, even knowing all this. Everyone's going to be in the same boat, and it's going to be a strange one, great depression styles, and I am looking at the very low end of the market (which means I'm constantly missing out on places, as I can't put too high an offer in.)

I would say be very careful about going for something at the limit of your spending ability, if you do decide to buy.... but then I've always been very cautious and gone for small places, in poor condition, at the lower end of the market that needed huge renovations. That's not everyone's idea of fun, even if it has been mine, and probably will be in future.

I hope you are happy, whatever you decide.

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From:tatjna
Date:June 11th, 2011 11:12 am (UTC)
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Thanks for that, it's useful advice.

And, I haven't unfriended you anywhere. I stopped following you on Twitter because our communication style doesn't lend itself to 140 characters and I want to keep liking you. ;-)
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