Buying a home may once have been the great New Zealand dream. And even though it's still a goal plenty of us aspire to, declining affordability is seeing patterns of home ownership change.
One of the reasons home ownership is so much a part of our national psyche is because our homes grow in value over time.
But the upside of owning the roof over your head goes beyond rising property prices.
The pros of owning a home
There are plenty of pros to owning a home. For starters, as mentioned above, over time property prices rise.
Furthermore, paying off a home loan is a form of enforced saving, which stands us in good stead later in life.
Homeowners are generally well-placed to enjoy a comfortable retirement, without the worry of continued rent payments.
The pros of renting
Renting may not be the first choice for many, but it does have upsides. As a tenant, you have the freedom to live wherever you choose. You may not be able to afford to own an inner-city terrace, but chances are you could afford to rent one.
If it turns out you're not a fan of inner-city living – or your job takes you to new destinations – you can generally pull up stumps and move without lengthy delays or significant costs.
Another of the underrated joys of renting is the lack of repair and maintenance bills. If the hot water cylinder breaks, it's the landlord's problem, not yours.
The costs of owning a home
The key downside to home ownership is the cost. Buying a home brings a raft of upfront expenses, notably the sizeable deposit that's required.
That's followed by often several decades of paying home loan interest, plus all the outgoings associated with owning property – from rates and insurance through to repairs and maintenance.
Tenants can have higher disposable incomes than homeowners
Home ownership can be great, but it doesn't come cheap. This explains why, in some scenarios, tenants can have a higher disposable income than homeowners – disposable income that can go towards building personal wealth.
5 ways to build wealth without owning a house
So the question is, where should you invest so that renting doesn't leave you behind financially? Here are five options:
1. Invest in a rental property
Maybe you can't afford a home to live in. But if you want to keep a hand in the property market, it may be possible to buy as an investor. This offers far more freedom in your choice of locations. You don't need to make buying decisions based on personal needs, which frees up options like buying in more affordable regional markets.
Along with rental income to assist with loan repayments, you can benefit from any increases in the property's value over time.
Do note, however, that many benefits on offer for first home buyers, such as KiwiSaver withdrawals, are not available if buying as an investor.
2. Grow your KiwiSaver
Speaking of KiwiSaver, it's a great way to invest in your future. Investing in KiwiSaver has the benefit of earning free employer and government contributions, and locking away your funds until retirement, providing the potential for some serious long-term gains.
You can also use your KiwiSaver to put towards the cost of a first home.
Although, it's crucial you're in the right KiwiSaver fund for your needs.
3. Build a share portfolio
Shares can be a lucrative investment. You need very little capital to get started and you can sell your shares easily if you need funds in a hurry.
There's also the possibility to make strong gains although, on the flip side, you could lose money. So make sure you understand the risks.
4. Consider exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) offer an easy way to grow a highly diversified portfolio even if you don't have plenty of time – or capital – to invest.
ETFs allow you to invest in a basket of shares in a single investment. So instead of investing in 50 different NZ companies, you invest in a single ETF (The NZX50 ETF) which includes shares of the top 50 NZ companies.
Options span everything from New Zealand shares, international shares, market sectors, and even commodities such as precious metals or crude oil.
It's worth noting that most, though not all, ETFs are index funds. This means they take a passive approach, aiming to match the market they invest in, rather than trying to beat it.
However, this still offers plenty of opportunities for growth.
5. Invest in… you
If you're looking for an outstanding investment, the answer could be right there in the mirror. By upskilling, you may open up new career opportunities that can grow your income.
This could involve going back to university to obtain a degree, or it could be as simple as doing an online course to expand your existing skillset and open up new avenues within your sector.
Although you do also need to weigh up the fact that investing in you may require you to use your savings/take out a loan to cover the costs of further education.
Spread your money around
As they have the potential to earn more disposable income than homeowners, renters can take their pick of investments.
While we've offered five different options, it's worth stressing these are not mutually exclusive. Mixing and matching is a smart idea as it lets you diversify your investments, which is a proven way to reduce risk.
The main point for renters is that investing on a regular basis calls for discipline. If that's not your strong point, think about strategies to make it happen automatically, such as setting up regular purchases of ETF units, or investing in KiwiSaver where your funds will be locked away from reach.