At a crossroads

[AndrewB]

Hi all, I'm after some life advice

I have just finished the 1st year of a 10 year plan of leaving the rat race behind to live off the grid on acreage in New Zealand (I currently live in Australia).

The savings side of things is going well, but I've been considering buying a house here in Perth rather than renting. Factoring in interest payments, insurance, & rates, I would be about $70.00 a week better off buying a house. It would lock my money into an asset though & if the housing market crashes I could be left in a bad spot.

The benefit of continuing to rent is that I do like being completely debt free. It takes a lot of stress out of my terrible job, knowing that I can walk out at any time & not have to worry about having an income to cover the mortgage.

My third thought is going to New Zealand early to work before buying some land. Housing is a lot cheaper over there & I could get a good job easily enough with my skills & experience.

So I'm trying to work out whether I stay renting, buy a place here, or just jump on a plane & head to New Zealand once my lease is up this year.

Any thoughts?

 

[Letsgokate]

Decisions, decisions. I can see why you are at a crossroads. You have a goal that is great, I think everything you do needs to be working towards that goal and the time frame you have for it. What are the pros and cons for each option you have suggested, will they hinder or help your goal.

I think some of this really depends on the time frame you wanted to be in NZ. Owning a house is a long term option whereas renting is short term and temporary and as you say provides freedom, no debt, you can pack up and leave whenever you are ready to head off.

Renting is no fun, we did it for several years ourselves before we found the right place to buy. Having to put up with agents and inspections and not being able to do what you want to your own place. Renting did allow us to look and watch the market for years until we did find the right place. My husband kept his finger on the pulse with what was happening in the housing market.

If you have a while before your lease expires you have time to maybe look into each option. Check out the housing market, go to some open homes. Investigate what job options are available in NZ and the housing market.

We had a very long term goal here planning to stay for 20 years, we are into our 5th year here. We knew this area was marked for development but it was a long way down the track or so we thought. New residential developments are happening at the end of our road (long road), the old lady next door who developers have been keen to buy her property died end of last year and the Catholic church has bought 7 large acreage properties across the road from us with part of the school opening in 4 years. So everything is happening a lot quicker than we expected and has changed what we are doing a little bit. The house is over 25 years old and we have been slowly renovating it. Between that and the garden, veggies, fruit trees etc all we felt like we were doing was working our butts off when developers could come along and offer us a deal we can't refuse and knock all our hard work down. And then Chris with his still ongoing health issues. So long story short we will still plod along and do bits, but at a lot slower pace, take time out to smell the roses and not invest all our money into the place. We have no idea when that time will come, but we had to adjust our thinking and goals a little bit.

My point is that you can always adjust and change direction but still be working towards your end goal. You never know what things are going to come up in life, work, health etc so do what your heart tells you what feels right in your gut and go for it

 

[ClissAT]

A lot of merit to what Kate says.
My experience of owning a home is they can be money pits. Then there's the market which is fractious at best these days.
Check out employment options in NZ to be sure.
If good, get on a one-way flight asap!

 

[AndrewB]

Thanks for the input.

Your point about a developer knocking down all your hard work is a sad truth. Even in town people are buying places with nice big backyards, subdividing & putting another house there. I don't know how people live in them.

I've been keeping my eyes open for jobs both here & in NZ.

I'm expecting a job offer in a few months, our only real competition in the country is building a new warehouse in Perth at the moment & will be looking to staff it. I'm the best in town at what I do, so they have already approached me.

Whether I go or stay where I am, I should be able to get a higher pay rate out of it, which would really help accelerate the savings. If this happens I think buying a cheap place close to work would be a good option. If not, there isn't anything keeping me here.

Something I saw recently that I would love to do is go work on the research base in Antarctica. But I couldn't leave my fury little friend behind! I think she will love NZ, all the possums to chase around will be like a dream come true. She spent half of tonight trying to jump into a tree to catch a rat

 

[Berkeloid]

When you calculated that it was cheaper to buy than to rent, did you include stamp duty and legal fees at both the buying and selling stage, as well as the agent's commission at sale time? I assume you included rates, land tax and possible body corp fees. Did you calculate the value for different lengths of time (1 year vs 3 vs 5 years) to see if there is a point at which it starts out cheaper to rent, but then ends up cheaper to buy?

I saved up and bought a few investment properties as soon as I could after I got my first job, and now I'm at the point where I want to sell them to get the money to buy a rural property. Unfortunately the market is flat at the moment and the only offers I've gotten are for less than I paid for the properties years ago. With all the new apartments going up in the areas I bought in there is an oversupply now too, so I'm not expecting the prices to recover any time soon. So I'm kind of stuck with them now because worst case I want to at least be able to pay off the mortgage if I sell, but even that won't happen if I sell right now.

So if you decide to buy there is some risk that you might have to delay your plans when it comes time to sell again. However if you are lucky enough to find an awful house going cheap that you can do up while you're staying there, there is also the very real possibility that you can make a tidy profit to help buy the next property in NZ.

So my advice would be to only buy if you can find a real bargain with a definite potential for growth, or if you're planning to stay for the long term.

 

[AndrewB]

Thanks, that is good advice. There was a bargain property that sold for $150,000 just down the road from me in really poor condition. The guy that bought it has revived it though & will probably make a good amount on it. Most houses around here are going for around $400,000.

 

[ClissAT]

But remember he'll most likely pay a heap of capital gains tax too.
You can't win against the govt.
And as of today there is a downward surge running headlong through the selling community in places like sydney.
There's this thing called dont get caught still owning your property or some such.
Sell at any cost, take the loss and write it off on tax while you can!

 

[Berkeloid]

If you live in the property, legally making it your "principal place of residence" (PPOR) then you shouldn't pay any capital gains tax when you sell, as your own home is exempt. But if you buy it as an investment (where all the costs become tax deductible) then you certainly will pay CGT when you sell. However if you hold the investment property for more than one year then you only pay half the CGT you otherwise would. Interestingly, vacant land cannot be a PPOR as there is no dwelling on it, so there is no CGT exemption for vacant land.

Taking a loss and writing it off on tax is harder than it seems. It's only possible if it's an investment property, and if you've got enough other investments making enough profit to write it off against. For example if it's your only investment property and the only other tax you pay is income tax, then you aren't allowed to write off the capital loss against your income tax (this is different to normal investment expenses like paying the rates, which you can write off against your income tax).

You can only use the capital loss to reduce the amount of tax you pay from other capital gains. So if you sell two investment properties, one at a profit and one at a loss, then you can use the loss to reduce the profit and pay less CGT overall, but if you have no other capital gains then you can't apply the capital loss against anything. You can carry the loss forward for a few years until you eventually have some capital gains and apply it then, but you'll never be able to use it as a tax write off unless you do more property investing, long term share investing, or something else that will generate some capital gains.