First home buying

Setting up my kids for the future

If we find it challenging to buy a home, imagine what it might be like for our kids. Brendon shares what he’s doing to improve his kids’ home-ownership chances.

 

I have been responsible for bringing two boys into the world and I think my responsibilities don’t end there.

On a philosophical level, two of the key things I believe I need to do as a dad are to, firstly, do all I can to get them through to adulthood with a positive sense of self-regard. And, secondly, I need them to know that I think they are both awesome. The two ideas are, of course, related, but if I have done them then I think I have done okay. Stay tuned for progress reports.

Beyond the philosophical, there are some things on a financial level I want to do in order to set them up. 

I would really like them to be in a position to buy a house in the future (if they actually want to do that is up to them, of course). So the first thing I will do is to encourage them not to live in Auckland!

That aside, they have both been signed up for KiwiSaver. When I set this up they were eligible for the $1000 government kick-start (not available now) so I took that opportunity.

The second, and related, issue is around setting them up with some skills and habits towards working. 

My eldest, who is now 16, works five hours a week with me at Velocity Financial (I often wonder why all my scanned files show up upside down!). This is a little easier for me to organise than for some because I am also the employer. However, I still think this was one of my better moves as a dad. We gave him a formal interview and set him up on our payroll system officially. He has a job description and is accountable for his performance. He is living the dream!

He also contributes to his KiwiSaver. This is part of the home ownership plan.  We are using that to help him save for a deposit.

My youngest is 12 and he has just started a paper run. He is a contractor (hence, why they can get away with paying less than minimum wage and is paid on “weight” of delivery—just in case anyone is interested). The reason this is relevant, however, is that, because he is a contractor, his “employer” doesn’t pay KiwiSaver. So we have set up voluntary payments to his KiwiSaver.

To be fair, $2 per week isn’t going to get him into a house for quite some time. However, at this stage we are concerned about setting up the habits that will get him there.

All our great laid plans aside, it may be that when our boys are ready to buy a house they may still need our (my very patient wife and my) help. So we are working on a debt reduction strategy so we are in a position to do that. Investment property has also been part of our strategy to help get us there.

Let me finish with a quick sales pitch. Yes, at Velocity we can set your kids up for KiwiSaver and can talk debt reduction and financing investment properties. We can also point you in the direction of good lawyers we work with to make sure your affairs are structured in such a way where your kids will be looked after and a way that aligns with the plans you have for them.

Do feel free to get in touch!

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

 

Letters from a Foreign Land ... Auckland

It’s spring 2015 and while the rest of the country wallows in the pool of stagflation, Auckland is partying like it’s 1999. So, what does the homeowner do when the property market is going crazy like this? And what does it mean for the rest of the country?

I've been travelling to Auckland from Wellington for the past year and a half and if you would like to see an example of forlorn misery, talk to a potential first-home buyer anywhere between Pukekohe and Warkworth. If they can rustle up $70k, they may have just enough to purchase a property. If they wait for a month, their purchase price will have increased by $10k.

It's a little better for existing home owners in the 09 area, although they face a problem of a different kind. If they sell their property and liquidate all this new found equity, what are they supposed to do with it? Unless their plans include moving to Napier, they haven't really got the opportunity to improve their situation. 

And let me tell you, their plans do include moving to Napier ... or at least Tauranga. Ask them their thoughts on Papamoa and first home buyers get a far-off look in their eyes. They're plotting on how they can find work down there before you've even finished the question.

As a result, I believe Wellington is in for a bit of a boost. Tony Alexander said it most succinctly recently (despite my recent light-hearted article on Tony here, I respect his thoughts a lot):

If you were a first-home buyer in a white collar job, and you desperately wanted to own a home (as most young kiwis do), where would you look to? You have the choice of the smaller towns but your best odds of finding a 9-5 job is in the Capital. [Heavily paraphrased but you certainly the gist of his message.]

The two questions everyone in Auckland should be asking are 1) if we're partying like it's 1999, at what point does the clock hit midnight and the hangover set in? And consequently 2) do we have a box of Nurofen and Panadol big enough to cope with the resulting hangover?

Here is my two cents worth: The party is likely to continue for at least another two years because of supply issues (i.e. not enough houses) and low interest rates. Feel free to unleash the trolls in the comments section below.

Rupert Gough is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Buyers’ Club: The First Session

Lance shares some highlights from the first of the Buyers’ Club evenings.

On the 7th September 2015 I teamed up with a brilliant solicitor, James, and a super star agent, Alice, to run an interactive evening focused on helping first home buyers understand and relax in the house buying process. In case you missed it, below is the brief outline of what we covered:

1. What banks are looking for

2. What lawyers are looking for 

3. What you should be looking for  

What banks are looking for

When hoping to gain a successful application for a home loan there are three main criteria that the bank is looking for and it’s helpful to look at them like the three stages of a triathlon:

The Swim (a.k.a. Deposit):  It is optimal to have a 20 per cent deposit and if you have this you are one third of the way toward receiving a success application. However, this being said, banks do lend above this, so do not in any way be put off if your deposit is closer to 10 per cent. Imagine you are a triathlete and you have not had the best swim, you still have the opportunity to make it up on the cycle and run sections.

The Cycle (a.k.a. Serviceability):  Can you pay the loan back? Servicing calculators by the banks currently estimate interest rates in the mid-seven per cent range. This is to average out the ebbs and flows of interest rates as they rise and fall over the life of your loan. However, current interest rates are much lower than seven per cent so there is reason to believe your repayments may be lower than those estimated by the online calculator.

Once the bank knows what your repayments will be, they will also want to know how well you can cover your other living expenses. For although it’s nice to own a home, it’s also nice to be able to fill that home with furniture, put food on the table, have heaters running and lights on! So, as you can imagine, it’s perfectly understandable why your lender will want to see a good-sized buffer between your repayments and your income.

The Run (a.k.a. Debt):  Having debt may not itself stop you from obtaining a loan, but it may reduce the amount the bank is willing to lend. It comes back to the point above about you being able to cover the regular costs of home loan repayments, living expenses and repayments for any other debt you might have.

What lawyers are looking for

Before talking to your lawyer about the sale and purchase agreement on your future home,  it’s helpful for you to think about some of the conditions you’ll want to include in that contract. Here are three contract basics that we covered:

1. Settlement Date:  When deciding on a settlement date make sure you leave yourself enough time to give notice to your current landlord and to also complete any checks you want done on the property. If you are obtaining KiwiSaver and don’t have pre-approval it’s a good idea to have a longer settlement timeframe to enable applications to be made.

2. Finance:  If you require finance for the purchase, make sure your agreement is subject to you obtaining bank approval.

3. Builder’s Report:  Having a builder check out a property is a great idea, they will often pick up issues that you don’t see. You can include a clause for this in the purchase agreement.

What you should be looking for:

1. Have everybody you need on hand: real estate agent, broker, lawyer, builder and valuer.

2. Once you know your price then you will know where to look.

3. Use online tools to help you get the full picture of the property. (CAN YOU PROVIDE SOME EXAMPLES OF THE ONLINE TOOLS AND LINKS?)

4. Understand how the various selling techniques work: tender, buyer enquire over, negotiation and auction.

5. Find out agency rules such as the days on the market before the property can sell, capability to sell prior to tender and rules set around deadlines.

Our next session of the Buyers’ Club tackles the topic of Strategic Buying and is on 5:30pm 21 September 2015 at Level 8, Leaders Real Estate Brandon St. If you are interested in attending feel free to RSVP to me (lance@velocityfinancial.co.nz)

Lance Shearman is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.