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Myths about home ownership and trends show the changes of the housing market.

The bold common view is; a home is an investment, capital gain is gifted money that makes rich, and a mortgage-free home is the financial freedom in retirement

 

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Myths about Home Ownership

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Statistics show the trend

 

The message behind the diagram is that homeowners are the majority of Non-movers. Renters move households more often for several reasons such as job hunting,  lifestyle and because of wanting to outrun the tenancy law. Renters can change the residence without telling anyone, in contrast homeowners are registered with the property title.

 

Homeowner’s residence has a different meaning, it offers a sense of security that an rental home not has as the landlord is in control.  However the key factor that homeowners proving the stats are right is the relationship to money by using it wisely.

 

International, NZ is not an exception, home ownership is declining. This is due to demographic trends, changes in lifestyle, high property prices and changing job market. Even though home ownership still is the preferred way to take control in live.

 

 

Myths about ownership

 

Interestingly in debates about home values the majority of people don’t see the difference between owning an owner-occupied home or a home purchased as investment property. The bold view is; a home is an investment, capital gain is gifted money that makes rich, and a mortgage-free home is the financial freedom in retirement. Well, maybe or not and here is why.

 

Capital gain vs. mortgage costs

Money savvy people can easily use an online mortgage calculator to estimate the mortgage costs. In reality people pay a fortune for a mortgage-free home, three-times the actual purchase price, only for securing a place to retire.

 

 

Family home—a good investment

The definition for an investment is spending money for profit or generating income. In economic sense the purchase of an income producing asset (e.g. investment property, for profit from rent, capital gain) is characterized by - Return On Investment (ROI). What is the ROI on your family occupied home?

Home owners can be lucky when at the end of the loan repayments all expenses are compensated by the capital gain. Hence people tend to compare purchase with selling price only. The costs (wear & tear) for holding a depreciating asset like a house  are really huge. Cumulating wealth is a job of sacrifices and saving, far from being an investment.

 

 

Financial freedom in retirement

Statistically non-housing wealth and the amount of savings by renters are distressing.

True, home owners are in a better position. Fair enough, they have saved money a life time long, right?  But for all that the money frozen in a home is hard to access. People in retirement need cash for the lifestyle they wanted plus money for increasing holding costs (rates, insurance, maintenance, repairs, etc). 

 

One option is to bridge a shortage of income by borrowing against equity of a family home. What would you do without borrowing capacity?

 

 

 

Getting rid of financial burden

 

Coming back to the above, people seem to move household more often and homeowners buy and sell homes more frequently. Prior October 2015 selling and buying has been used in seller’s markets to take out capital gains for reducing the financial burden or for making a quick Dollar.

 

That practice has been stopped since introducing the “bright-line” test in October 2015. The ‘bright-line” test  clarifies whether or not CGT has to be paid on property sales. That applies to anyone who frequently buys a home and does it up while living in it and  then sells the property for a profit.

 

Closing this loop-hole has made it tougher for homeowners to ease the financial burden. Actually only homeowners who live within their means can manage financial burdens. More serious people repay debts faster as here illustrated, showing how much early re-payments can save on interests.

Take control,  it’s your life.

 

 

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