Going, going… gone

Turning my quarter-acre dream into a reality

A while back I posted this. It spoke promises of regular updates and some degree of inclusivity along my house hunting journey. I hoped to be a guide, or at least a voice for other Millennials who had perhaps thought home ownership wasn’t a viable option for them.

Clearly I fell a bit short. My apologies.

But what didn’t fall short was the house hunt itself. I’m happy to update you that I am now the very proud co-owner of my own slice of Aotearoa.

It’s a small & modest start, but everything we could possibly need. And it’s ours.

Not wanting to start 2017 off in sloppy style I’d like to right my wrongs and turn this post into a monolithic recount of how I went from renter to home owner.

So go make a cup, no, pot of tea, ensure your device is connected to a power supply and settle in to the best seven part adventure since Harry Potter.

Part One: The Figures

A lot of us around New Zealand are already paying weekly rent that would easily equate to mortgage repayments. Our problem isn’t lack of income to service a mortgage, it’s the fact we don’t have a big enough deposit.

Let’s work through an example:

There are currently almost 1,000 properties on Trademe for under $450,000 in Christchurch. I’m using $450,000 as an upper search limit as it was the maximum amount you can spend on a house in Christchurch and still qualify for the KiwiSaver HomeStart Grant when I was buying (it’s now $500,000). This is not to be confused with the first home KiwiSaver withdrawal. The latter is taking money you earned out of your KiwiSaver account, the former is essentially free money. You can see why we wanted to buy under the threshold.

Continuing with my example, you typically need a 20% deposit to secure a mortgage from the bank. For a $450,000 property that equates to $90,000.

Bingo.

That’s the reason most of us Millennials can’t afford a house. It’s not because we can’t make the repayments as they’re basically the same as my rent at this price, it’s because we need almost six figures to even get our foot in the door. I talk to family friends in their 50’s who talk about buying their entire first home for under $20,000. You can adjust for inflation and income growth all you want, but the numbers still don’t reconcile. Our generation will struggle far more to buy property.

So how did I do it?

Well the real question is ‘how did we do it?’ And in turn that’s part of my answer. I bought the property with my partner meaning half the work. Theoretically I now only need $45,000 to get the minimum deposit. Still a large sum for an average 25 year old to contemplate.

Unfortunately my personal experience isn’t an overnight fix for others out there. It has been a four year process, no help to you right now but I think it’s worth sharing as a lot of our generation seem to be under the illusion that things come instantly. I’m sorry, but they don’t.

Just to put things in perspective $90,000 is more than my partner and me currently earn in annual joint income. Myself, I’ve been in the full-time workforce for four years now. I’ve had patchy income along the way due to the typical lack on money that seems to be a factor in start-ups and have only received income for about 2/3 of that time.

But I’ve always managed to live within, or below my means regardless of my income. I was forced to get really good at narrowing down the definition of ‘need’.

It’s easier than ever for our generation to get caught up in a pointless spending cycle, confusing needs with wants. Spending $450 on a dress here, $1,000 on the latest iPhone there, only to be repeating those purchases in six months time. It’s wasteful, frivolous and counterintuitive to what I want to achieve in life. I assure you that over your life to date you’ve spent more than $45,000 on stuff you didn’t need. And the great thing is I genuinely don’t feel like I’m missing out. By only wanting what I need, I’ve been satisfied by less along the way.

House Hunt Hack #1: Learn to rewire your needs and wants and start saving the excess

If you need a friendly push along, read this book, or watch this documentary.

But why stop at only reducing your expenses? To maximise your savings potential you should also increase the other side of the equation; your income.

With all that free time you now have from not being hungover on a Sunday morning, or from not gaming after work as you’ve sold your Playstation and other unnecessary possessions, why not spend your time productively making more money? I don’t mean working overtime at your full-time employment, that sounds boring. Create work based on the skills your current employer pays you to develop daily.

For example in late 2014 when our start-up still couldn’t afford to pay us I launched a passive income generating side project with friends. I worked on it from home from 6–10pm for around a month. I made enough to cover my low living expenses during this period as to not dig into my savings.

I get not everyone can launch a site in a month, but think about what you can do. Someone pays you to do it during the day, so surely you can prosper from these same skills on your own. You’ll need to get creative and realise this isn’t your typical 9–5, nobody is going to pay you for going on Facebook all day anymore. Try and do something that earns you $200 a week, in a year you can save over $10,000.

House Hunt Hack #2: Always increase your earning potential outside your 9–5

Sounds long, hard and boring? That’s the point. Every 25 year old would have a house if it were easy, you need to separate yourself from the pack. Use those barriers to entry to your advantage. Be self-aware that this world works against you financially, trying to keep you in the rat race and clinging on with the Joneses. You have to want enough to buy something big tomorrow to avoid buying something small today.

Everything I’ve written until now you will already know; spend less, earn and save more. It’s up to you to form the behaviours to make this happen.

And for those of you who think this is unachievable, here’s some proof it’s not. Let’s save the deposit in two years:

Find someone you trust to agree to go in on a house with you

Assuming you can buy something for $450,000 you need to get $45,000 together for your share of the deposit

Total deposit remaining: $45,000

Assuming you’ve been working for five years contributing to KiwiSaver and the pair of you earn less than $130,000/year you can get $5,000 from the grant

Total deposit remaining: $40,000

Given that you’ve been working full-time and contributing to KiwiSaver you should have around $10,000 in your account, you can withdraw all but $1,000 of this

Total deposit remaining: $31,000

Spend less: Discover your vice and cut it cold. Mine was technology. Yours might be clothes, make-up, food, travelling, sports gear or seeing as we’re Kiwi’s, drinking. Save at least $150 per week on average from reducing your spending in these areas. In two years that’s $15,600

Total deposit remaining: $15,400

Earn more: Over those two years chances are you will get some kind of a pay rise. If you do, keep living the way you are. There is no need to adjust your lifestyle to match your higher income. Let’s be conservative and say you bring in an additional $3,500 net in two years from salary increases at your 9–5

Total deposit remaining: $11,900

Earn more again: Alright now we know how much money you need to make in two years from your side project. You need to start bringing in $115 a week somehow. It doesn’t matter how; become an Uber driver, mow your neighbours lawns, offer consulting services, go on SJS and look for one off jobs, start a small online business, start drop shipping. Just start doing it and get that $11,900

Total deposit remaining: $0

I admit the above example won’t work for everyone. I’ve made a lot of assumptions about your earning ability, lifestyle, and spending habits. I also had a particular bunch of individuals in mind who constantly complain to me about not being able to afford a house whilst having social media accounts littered with overseas holidays, drinking, new clothes and toys. The point I’m trying to demonstrate is that there are always ways to get what we desire and usually the one stopping us from achieving this financial freedom are ourselves.

I followed these rules for four years and saved more than my share of the deposit. And was in a position to start deciding what I wanted from my $450,000 house.

Here’s a satisfying gif to say thanks for making it this far

Part Two: The List

Want to know what feels good? Creating a new Google Doc and titling it ‘First home requirements’. That feels really good.

Being we were first home buyers, so weren’t after the world. Plus that’s not really in our nature. We were previously flatting in a small two bedroom place that embodies the word humble. Yup it’s the beautiful image below that looks like a mash up between a Versatile garage and a tiny cottage.

The place we were renting prior to buying. The only thing wrong with it was having to pay rent.

So given the life we’d been leading in our Versatile cottage, what couldn’t we live without? What did we want from our first home?

It turns out the list wasn’t too long:

A great location for both of us to get to work. Not so worried about being in a fancy suburb

Something with good resale value/will at least hold value

Something that either requires cosmetic work only, or is fully finished (neither of us are that ‘handy’)

Minimum of two bedrooms (aka potential dog box), one bathroom

A bit of grass. Enough to read a book on, not enough to resent the fact that you have to mow it

A wood burner or heat pump (I get cold easy)

At least a couple of Poké stops near by would be nice (just kidding, but Pokemon Go was a big thing when we were house hunting)

This seems reasonable right?

Sure it seems reasonable, but in hindsight this whole exercise was pointless. We wanted to buy a home in Christchurch in the next few months. We weren’t building so were restricted by what was on the market. For anyone else out there at this stage have fun creating your list, dreaming about the future, but know that it’s a waste of time. If there wasn’t anything out there that ticked these boxes we had to compromise.

House Hunt Hack #3: Have enough desired criteria for a decent filtered Trademe search, but anything over and above is just raising expectations unnecessarily

What house hunting feels like

Part Three: Open Homes

I really hope you don’t like brunching, shopping, relaxing, socialising, or any of the other wonderful things typically done on a Sunday. Because if you’re buying a house you won’t see them again for a long time. Instead you’ll be attending an ensemble of open homes.

At first these are exciting and you’ll be giving your personal details to realtors left, right and centre. The simple thrill of the thought that the next house could be the one.

Just a few of the 30+ open homes we viewed during our house hunt

But after a while the novelty will wear thin, and you’ll realise that this, like many others aspects of the house hunting process is a well disguised chore. Furthermore it’s actually a really ineffective use of your time.

Here’s an example.

The first open home we went to we did everything wrong; namely I fell in love with the place, oh and we disclosed our maximum purchasing power to the real estate agent. Whoops.

Buying a house, particularly one that will be your first home is inherently going to involve emotions, however they should never be the driving influencer of purchasing behaviour. And although a realtor will be as helpful as possible, you’re not their client, the home owner is. So when we went to the auction for this place (after already imagining drinking the celebratory champagne) we were bitterly disappointed when the bidding quickly blew our budget out of the water.

House Hunt Hack #4: Leave emotions out of it

Repeat that process ten or so times are you’ll be very hardened to the house hunting process. Not to mention the costs involved in LIM and building reports which were eating into our deposit.

Enter the buyers agent.

I knew that one day my investment of 100+ hours watching Million Dollar Listings would pay off (team Flagg all the way). A concept not so prominent in New Zealand compared to the States is that of a buyers agent. A realtor who you work with to buy a house. There is no formal contract between yourself and that agent and there is no fee for their services that you as the house hunter have to pay (they get a commission on the sale of the property).

We met with Candice at one of her listings and passed on our details and briefly discussed our requirements. She then presented us with any house she came across that met our brief. It was like we had outsourced the search and were only presented with the quality we wanted to look at. Better yet she would arrange viewings at anytime we wanted, dealing with the agent herself. Sunday brunch was reinstated once again.

House Hunt Hack #5: Get a buyers agent to do all the initial searching for you

If I were to do it again I would get a buyers agent on day one and not go to an open home at all. It decreased our workload, and also added another layer between us and the properties and let us think more with our heads than our hearts.

Us at 80% of the open homes we attended

Step Four: Giving Up

Even with our Buyers agent things were still pretty slow to progress. We had a firm deadline of when we had to buy before (the end of our current rental lease) and that date was firmly approaching. We’d looked through more than 100 properties, seriously considered 8 and made an offer or bid on 2. Yet we still hadn’t found the one for us.

It was at this point that we decided to take a break from active house hunting. The workload at my company was ramping up significantly and I didn’t have the mentally capacity to continue both with the attention they needed.

Unfortunately it’s not easy to take a break from house hunting.

I had now given my personal details to what seemed like all of Christchurch’s realtors so my inbox was littered daily with new listings. My Trademe Property email settings were on full volume so that added to the noise and distraction as well.

But after a couple of weeks my detox was complete and was able to walk around town without considering what the RV was of every property I walked past was.

Of course this was when we found our dream home.

It’s the sort of thing straight from an Alanis Morissette song. You can’t make this stuff up. So how did it happen?

I was in a meeting and we got of course chatting about how ridiculous finding a house was and she said that another client of hers was selling her place. Having detoxed from the house hunt I was interested but not overly engaged. It took me a while to realise that the location was perfect, the size was perfect, and most importantly the price was perfect.

I was now intrigued.

We spoke about it a bit longer. “Small cottage recently fully renovated by the owner who was a carpenter. A block from the City Centre, and close to the motorway.” So not only did it tick the major items on our list, even the stuff we could go without (like close to the motorway for my partners job) were coming up golden. Better yet it was new to the market and would be going on Trademe for the first time that next day.

I was now optimistic.

I jotted down the address and drove by on my way home and this was what I saw:

The moment I knew our house hunt was over

I was now excited.

You know that whole thing around “you know when you find the one”, well I’ve never experienced that. Until that moment. Even without stepping foot in the door I knew that this was going to be my first home. I immediately called my partner who didn’t quite share the excitement levels I was seeking, so I then messaged Candice who gave me what I was looking for.

She then arranged a private viewing for us and we were sold. The best part of it was unlike most other properties that went to auction, this had an asking price of $419,000. Sitting well within our limit of $450,000.

It was time to show them the money.

Step Five: The Professionals

If only it was that easy. Unfortunately there is a thick, unattractive layer of bureaucracy and administrative tasks that lie between you finding a house and you buying a house.

The list includes:

Getting a LIM report of the property and reviewing it, or having your lawyers review it

Getting a builders report

HomeStart Grant approval

KiwiSaver early withdrawal approval

Dealing with your lawyers who make it all official

Getting pre-approval from your bank (or several)

The last point actually creates a bunch of sub-points such as getting insurance pre-approval and if like me you’re a start-up or small business owner proving that your income is sound.

We decided not to go with a mortgage broker instead (naively) getting pre-approval with four different banks individually. This was really time consuming and next time I would almost certainly use a mortgage broker. I thought I could get around some of the inefficiencies by uploading all of our personal documents the banks required (like three months bank statement, payslips) to a dropbox folder and giving the banks access to this, but then it turned out none of them can access dropbox — classic.

Although I wouldn’t want to go through the process again it was really great insight into all of the problems faced by first-home buyers and more than a couple of side project ideas came from it.

The key thing was for us that we did all of this early.

We knew the house wasn’t going to sit on the market for long. It would be snapped up within days of the first open home. The fact that we were already pre-approved in all aspects meant that we could make the first offer. If we’d only then started the entire process with the different parties I’d say that would have set us back a couple of weeks and our dream home would be gone.

House Hunt Hack 6: As soon as you decide you’re buying, start doing your admin

So now we were ready to make an offer and the great thing was is we got to do it with the assistance of Candice. She dealt with all of the paper work, liaised with our lawyers, and kept us in the loop with progress. It was nice having this interface rather than dealing directly with the sellers agent.

This was most evident when we actually sat down to write out the offer. Through the different pricing advice we were getting it was clear whose team Candice was on. She was respectful of our price sensitivity while still making sure we priced appropriately to close the deal.

We made our offer Sunday evening and were told we would hear back at some stage on Monday. As you can imagine, it was a restless nights sleep.

Step Six: Getting it Done

This isn’t really a cliff hanger as I gave it away in the first few paragraphs, but our offer was accepted!

Our offer was reasonably unconditional but we still had a few administrative things to do on our end. The main ones being deciding which bank to go with and accepting the terms of the mortgage, then signing a few documents with our lawyers.

In choosing what bank to go with we tried to keep it as rational as possible and focus on price. At the time one bank also had a pretty tempting promotion going for a fully expense paid holiday to Fiji. We both hadn’t had a holiday in several years and with our new mortgage a holiday was probably a few years away still. We knew there was going to be a potential conflict in our decision making process here and we were going to have to exercise some extreme self-control.

A mortgage with a view?

It turned that the same bank with the promotion also had the best rates and terms, and we really liked the branch manager we were dealing with. Irrational decision avoided, free holiday locked in.

House Hunt Hack 7: Interest rates should be your priority when choosing a mortgage provider, the rest are nice to haves

So now we just had to wait patiently for possession date which we’d pushed out a bit to match the end of our current tenancy agreement.

The house hunt was officially over.

Let the celebrations begin (with Netflix and Pizza)

Step Seven: Profit?

Since purchasing I’ve had a few conversations with people about “how great it must feel to own your own home.” But I think that’s the wrong way to look at it; I don’t own my home, the bank does (or at least majority of it). My house isn’t my largest asset, it’s my largest liability.

I’m really still on the path towards home ownership and instead of finding the house, my new goal is to own the house outright.

House Hunt Hack 8: Don’t consider your house an asset until you’ve paid off your mortgage in full

We fully fixed our mortgage because the rates were just so low at the time we confirmed our mortgage (as in sub 4%). On top of that we both have predictable incomes, and don’t foresee any windfalls coming our way anytime soon (happy to be proven wrong here). But with any mortgage there is also a percentage of the annual balance that you can pay off in addition to your regular repayments. We decided that we were going to try to pay the maximum additional amount we could every year.

How?

Well we now had this house thing which had a spare bedroom, so the obvious solution was to get a flatmate. In our area we could probably charge around $100 everything considered, meaning potential annual revenue of $5,200. Not bad, but the idea of a full-time flatmate wasn’t that appealing to us. Instead we wanted more control around when someone was in our house and when we wanted the place to ourselves, or the spare room for friends and family.

Enter Airbnb.

Spot a familiar looking house on there?

At the start of the new year we listed our spare room on Airbnb. We actually got really into it and read a bunch of blogs and articles about how to price effectively, and how to make your listing stand out. We were treating this like a new venture, and not some hobby on the side.

The set-up costs were around $350. We needed things like new sheets, a luggage rack, some new towels etc. In only a couple of days we had our first booking, and this was closely followed by another, and another, and…

To date we’ve got just over $2,000 worth of bookings and a reasonably high occupancy rate. On top of this we have the flexibility block off dates that don’t work for us, so visitors are on our terms. Of course there are additional on-going costs involved in something like this (additional power, we provide breakfast, time), but most of that is tax deductible and it’s not as issue if you’ve priced correctly.

House Hunt Hack 9: Make your house work for you. Derive an income from it and pay back your mortgage faster

It’s been an experience so far and we’ve meet 13 amazingly diverse and interesting travellers. I’m not sure how long we will feel this way about sharing our home repeatedly with strangers but at this stage the financial benefit from doing this is so great in terms of paying off our mortgage faster that the burden of changing a set of linen every couple of days isn’t too cumbersome.

Summary

So there it is. Our house hunting journey over the last few months. I’m sure that every house hunting experience is vastly different, but if this gives one person even a glimmer of hope that home ownership isn’t lost to our generation I’ll be happy.

It’s important to realise that our generation no longer has the luxury of viewing home ownership as a right, unlike generations before us. The path to homeownership does require constant sacrifice and a shift in lifestyle. And this hasn’t changed from generation to generation.

But now that we’re here I can say it was all worth it. Especially given that this is my daily view: