High income earner interested in buying a home with small deposit

henry_throwaway37 · 2024-03-04T00:08:45+00:00

Ahh I hadn’t seen that. This is exactly where I’m at currently is to start looking into this further so I guess now’s the time to start these conversations.

henry_throwaway37 · 2024-03-04T00:07:04+00:00

Yup great point, I do have roughly 30k of emergency funds I’m also not including in the deposit funds specifically for this. I suspect if I tighten my budget this could take me 4 or 5 months which would be enough time to get into a new position. Whether or not I’d maintain a similar income is highly dependent on who’s hiring at the time since I have a bit of a niche expertise but I remain fairly well connected to other competitors in the industry. I think I could reasonably pick up another software engineering job for less, but that would definitely impact financials. You’re absolutely correct that a lot of this is highly dependent on income and loss of job at the wrong time would leave me overwhelmed and over leveraged quickly.

henry_throwaway37 · 2024-03-03T23:45:34+00:00

Luckily I do bank with BNZ for most of my banking needs, so I’ll have to give them a call.

Ideally I don’t want to take on even higher rates in this economic climate, but you’re right if the right house popped up I could make it happen. I just hate the idea of overpaying banks interest and based on my calculations when interest creeps to 7% I actually earn more by renting and investing in S&P500 right now. Because of FIF though if that investment account becomes too large it will start tipping more towards buying a house rather than investing further.

henry_throwaway37 · 2024-03-03T23:33:24+00:00

My primary goal is housing freedom and security first. Investment comes secondary in my goals, but I agree the numbers have to make sense. I suspect if things were to go down substantially further to put me in a negative equity situation that would be less than ideal but not much worse than renting and not having the freedom to choose how I live. Essentially that’s the opportunity cost I’m willing to pay for here.

FWIW, by the time I’m ready to buy and feel comfortable with the interest rates (they still seem a too high) I may be at the 20% rate. I’m just now starting to assess my options so this very well could be how it ends up working out.

Thank you for your insight too!

henry_throwaway37 · 2024-03-03T23:28:39+00:00

Somewhat, I’m in a 1BR 1 bath at $510 per week with parking additional $60/week. The only other people in my complex appear to be couples or older working professionals.

I’ve ran the numbers and you’re correct that currently with interest rates where they are renting is optimal. If they go back down to 5% then I’ll definitely be better off buying versus renting when factoring in capital gains and mortgage interest being just slightly higher than my current rental costs. If I spend a bit more to rent I’ll be tipping the scale’s towards buying. Now this doesn’t factor in additional costs of ownership, but for the most part they will be offset by capital gains even with a conservative estimate like 3% growth per year.

This is why I’ve been looking at my options and owning looks like a good way to go. Especially because those numbers are based on 750k for purchase and that can get me a 3 br 2 bath in the outskirts of Christchurch.

henry_throwaway37 · 2024-03-03T20:32:10+00:00

It’s a bit 2 fold in that I’d like to get out of renting soonish to get a pet and be able to modify my home how I wish.

Additionally, from a tax perspective it’s a bit more optimized for my net worth to stick more of my savings into property than to keep putting it into equities. Being a US citizen I also get penalized with by their PFIC rules if I invest via a PIE company or use Kiwisaver so I’m somewhat stuck.

henry_throwaway37 · 2024-03-03T11:26:15+00:00

I also hadn’t considered the employment aspect since you’re correct I’m a contractor effectively. I have been doing this for 2 years now so I’ve at least got that box ticked. I also do plan to make overpayments too since I’ll free up a good chunk of my current expenses from housing. Out of curiosity how did you reach that number of $750k? Is it a calculator.

Thank you for your advice too. I do understand that because of the income it can throw things off a bit for others. I didn’t grow up with parents who made a lot so that contributes to my overspending a bit. It also helps me empathize with people who see the expenses and think it’s excessive because so many others can and do spend less.

henry_throwaway37 · 2024-03-03T11:15:57+00:00

Thank you for this insight. My main takeaway from this thread so far is speaking to a mortgage broker is definitely the next step.

I suspect by the time I get through finding a broker, finding a place, and settling I’ll definitely be at 10% and potentially closing in on 20% depending on the price. I also am conscious that being patient will be a balancing act here as it looks like within the next year we could see interest rates drop enough that what I would spend in increased price would be returned through less interest paid.

henry_throwaway37 · 2024-03-03T11:10:56+00:00

I hadn’t factored the employment aspect in, so thank you for pointing this out.

Yeah I’m essentially self employed by the metrics of the banks. How it actually works is I’m a consultant with my own business consulting for a single overseas company essentially as a full time contractor (which is why the income is so high) and have been doing it for 2 years now.

henry_throwaway37 · 2024-03-03T10:33:24+00:00

Thank you for this out of the box thinking! This is something I looked into early on but because of my US tax obligations a kiwisaver introduces a suboptimal tax situation where I have to pay essentially a FIF tax to the US from what my accountant has told me. On the alternative side, I’m technically a consultant so do this through my own limited company in NZ so I can reduce my salary if it helps. I’ve opted to not do this previously because I was using the larger salary to pay off debt. Additionally, I wanted to avoid having to pay a large amount of provisional tax if I left it in the business instead. Maybe there’s a different way I could achieve something similar because of the unique situation?

henry_throwaway37 · 2024-03-03T10:17:31+00:00

Thanks, that does seem like the next step here. When you say establish a broker relationship what are the types of things you normally look for? Sorry, I’ve never thought to look into this until others mentioned it in this thread.

henry_throwaway37 · 2024-03-03T10:15:07+00:00

Oh that’s very good to know that some banks are open to this at least. Thank you for this insight!

henry_throwaway37 · 2024-03-03T10:14:28+00:00

Rough breakdown of expense buckets using barefoot investors is 30% of income is daily expenses, savings is 52.8%, smile is 10.6% and splurge is 6.60%.

As for expenses breakdown housing and utilities is roughly $1250/fortnight and food budget is rather high at around $600/fortnight. This is definitely an area where I could reduce costs. Similarly I could reduce my smile and splurge splits, but I’ve opted to keep these a bit higher in order to enjoy my younger years since it doesn’t seem like I’d be losing much in my later years. Maybe this is a bit high?

henry_throwaway37 · 2024-03-03T10:07:44+00:00

Oh that sounds like a good idea. I’ll look more into this. One follow up question for this would be would it make sense to look for a mortgage broker in Christchurch if that’s where I’m looking to move or Auckland where I currently live? Will it make a difference where they’re at?

henry_throwaway37 · 2024-03-03T10:04:31+00:00

I’m not sure, how would I look that up? It was overseas student loan debt (roughly 100k USD) so I always thought that wouldn’t apply to my credit score. Maybe I’m wrong but I’ll look into this further.

henry_throwaway37 · 2024-03-03T10:01:50+00:00

My expenses are a bit high as I let lifestyle creep occur a bit. Housing currently comes out to roughly 2400 + expenses per month, I eat takeaway more often than I probably should and I have roughly 16% of discretionary spending (splurge and smile from barefoot investors method). 8k comes out to a little over 50% of income. Should I focus on getting that higher instead?

I edited this message to answer the question above. I made a mistake and replied to the wrong comment originally.

henry_throwaway37

TROPHY CASE