There has been endless discussions, calculations, comparisons on renting versus buying, whether to choose a fixed rate or floating-rate mortgages, and on and on it goes.
But to every problem there is a solution……………..
OE or not, the “thinkers” in this age group know that somehow they should be saving for a first home as well.
Age 22 to 32 is 10 years – 2 to 4 years to have some fun, and some 6 to 10 years where they can go anywhere and seek well paid work.
There are still some well-paid jobs in the mining industry in Australia, super yachts need crews, jobs in the oil industry , and tax free jobs in the Middle East. A vast range including teaching, nursing, finance, engineering, marketing, and lots of less-than-attractive jobs others don’t seem to want.
The list is pretty much endless, but it requires is young people with an adventurous spirit and a bit of drive.
Of course a job that includes free accommodation would be a huge advantage.
Tax-free work is available in some countries, and that will lift your savings rate.
The exchange rate often adds a boost too as the NZ$ is still below many other countries.
The Staggering Difference
Let’s have a look at some basic figures, say a couple age 32 buy a $500,000 house.
Couple no 1 (CP1) have stayed in NZ, both worked and saved hard , but after rent, tax and lowish NZ wages have only been able to save $100,000 deposit. They take out a $400,000 mortgage at 7%* for 25 years. Repayments are $2,827 pm and the interest bill alone will be $448,000.
* 7% was common in NZ pre global credit crunch.
Couple no 2 (CP2) have worked offshore and have been able to save $200,000 so they borrow $300,000 for 15 years at 7%. Repayments are $2,700 pm and the interest will be $185,000.
After 15 years CP2 have cleared their mortgage and keep saving the same amount of $2,700 pm earning 5% net. After 25 years they will have a debt free house and investments of $427,000.
CP1 after 25 years have only just cleared their mortgage.
Notes to Offshore Work
You may have to live in a place that is not ideal.
Remember that it is not only a salary issue, but how much you can save after tax and living costs.
A job on a superyacht will normally include accommodation, food, and is often tax-free, so a lower wage might still mean you can save more.
Young Kiwis are well liked by employers for their versatility and capability. You will make many contacts too in your travels that could lead you to something very good, who knows, plus you will get invaluable job experience.
Staying at home
If you are progressing well in your career in NZ, then perhaps you should stay home.
However you must look hard at avoiding rent. I remember seeing recent newspaper article where a well-qualified young couple were advised by her accountant father not to take on a $500,000 mortgage. If the father lived not too far from their jobs, and had a disused basement, or a large garage, perhaps he could turn one or other into free/cheap accommodation for them, so that they could speed up their saving rate.
Or you could take on a big mortgage and convert a house into two units, or buy two units, live in one, and rent out the other unit. It would be very nice to have someone pay $20,000 pa. off your mortgage.
Or take in flat mates, a privacy cost , but again someone else to pay $15,000 to $20,000 pa. off your mortgage.
Buying a property that can be subdivided can be smart move too, but you need to know your stuff before you buy. You must have significant cash flow to cover the costs too.
We have only scratched the surface here, due to space limitations. Ask around, you will be amazed what young Kiwis are doing all over the world.
Whatever you do, there is a way not to be “financially strangled” for 25 years – seek it out, and you will gain so much.
This article was supplied by Alan Clarke who is the author of a book entitled “Retire Richer” which is a practical guide for everyone age 25 to 85.
Alan also writes a regular blog on www.investandretire.co.nz
Alan is an authorised financial adviser (AFA) and his disclosure statement is available on request and free of charge.