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Sell the house and retire earlier?

  • NZHL
  • 28th of March 2018

I read with interest the article that Emily Doran wrote on the 14th of March about downsizing her house and I have to say a BIG UPS to Emily for thinking it through and then actually doing it, that is a very bold move.  The biggest issue with the move seemed to be lack of storage but that is probably all of the packing boxes getting in the way?

Emily has achieved something that I am still deeply mulling over.  I am constantly debating the question of “should we sell our perfectly suitable house that we really enjoy living in?”  I have asked this question out loud now, just to cement the idea in my mind and my ten year old is horrified at the thought of moving to another place - but that is because she is a creature of habit with an innate fear of the unknown.  Generally when she gets to the ‘unknown’ she loves the idea!  My husband is also pretty quick to point out his thoughts on it being a bad idea, but finding the problem with some of my concepts is just an innate ability that he also has!  But I have persevered with my thinking out loud and I will tell you why.

We live in a great neighbourhood in a great house which is close to schools, parks, the shops and places to run with my dog.  If I can’t walk out the door and be there in ten minutes, I can drive out the door and be there in ten minutes.  But living in a small town, without named suburbs as such, you can pretty much do that from any point in the town; our location is not unique.  So although our place is great, there are equally as many great places all over town.  SO, we need not feel tied to this particular spot forever.

The nuts of bolts of it is that I believe we have too much cash tied up in our house, which is apparently worth about $650,000 but who knows really, until we try to sell it?  It is our biggest asset and an illiquid one at that.  In my mind we have about $250,000 too much invested in the house.  I want to release some equity from the place and the only way that I can comfortably see a way to do this is to sell it lock stock and barrel and buy something cheaper.  If cheaper is smaller, like Emily has done, well I think that would be perfect as well.

The biggest problem with my plan is finding another house and sorting the timeline to make things happen.  In a previous blog post I have written for NZHL I talked about how emotion gets in the way when you buy, well I can also tell you that it also gets in the way when you are contemplating selling.  What happens say if we put our place on the market, it sells quickly and then we can’t find a place to move to?  Everything is selling really fast at the moment and WHAT IF we keep missing out on a place and end up HOMELESS?  This is the scenario that is playing out in the mind of my family every time I mention moving.  I suggested that we could de-camp to the local campground but that idea was shot down in flames pretty quick, camping has never been our thing!

Last weekend the first real opportunity presented itself when a friend let me know about a house coming on the market of a friend of theirs.  If we were interested we had first dibs on taking a look and it would be a private sale.  So I went and had a look and the comparisons with the home I am sitting in right now are stark.

  • New vs Older
  • Warm vs Colder
  • Built for us vs 1980’s design
  • Private vs waving to the neighbour over coffee in the morning

But if I put emotions aside it was a perfectly tidy, perfectly good house on a perfectly good street and was still perfectly located for everything we like to do.  It was just older and DIFFERENT to what we have now and in fact the dog walking/me running opportunites were even better than where we are now!  And I asked myself, “could we live in this house and resist the urge to spend $100,000 modernising it”, because we probably could not just stop at a feature wall but would instead rip the place to bits and build it up again?  Or could we stick to the math, just live in the place as it is and invest that $250,000 which would create an income for us for the next 50 years?

Here is a rough back of the envelope calculation of what investing that $250,000 could look like if I invested it for just five years:

If I chuck that $250,000 into a term deposit at 4.3% it could earn me $59,000 (before tax)

If I chuck that $250,000 into a NZ Top 50 index fund at 13.7% (which is the returns they have generated in the last five years) it could earn me a staggering $224,000 (with distributions reinvested, before tax).

Uuum, now that is extremely interesting math.

Obviously with the share market past returns don’t predict future returns and I could invest the lot and we then enter a sustained rubbish period, but what is also true is that in the history of the share market, over time it has always gone up.  And I’m around for 50 more years so I could stay my course.  Looking at these numbers, I’m sold on the idea, but still the whanau are less so!

What about capital gains on my house that I sit into today is the house making money anyway?  Well yes the price of my house has been rising but it does not match the gains we could have received had we invested as above AND we have spent a fair amount of time and money tinkering on our house making sure it stays in tip top condition.

And another thought to add to the mix is IF we still had a $250,000 mortgage to pay on our $650,000 house and knew we could buy a house down the road for $400,000 and be DEBT FREE and never pay interest again, would we do it?  Without a doubt my answer would be YES!

What if we just stay put?  The house we now own has certainly gone up in value over the five years we have owned it, but at no time can I withdraw a dividend and use that money to go on holiday, at no point could we pull an income off it and reduce the hours we work.  And at no point could I sell off a square metre of it and invest it where I can access it at any time.  We have investments outside of the house that are growing each month, year on year and adding a big chunk of change to them would certainly boost their performance and the returns could really add value to our lives.  I’m currently 44 but my conundrum is the same as many who are heading into retirement and have all of their money tied up in their house, what are they going to do for cash once they stop working?  I’m just contemplating my move 21 years ahead of time, but it makes more sense to me to do it now, invest the cash I free up and enjoy the income that my investments create so I can enjoy each day without being restricted by cash flow.

So, as of writing this, I remain in limbo.  Perfectly comfortable in the house we built and really enjoy but equally perfectly uncomfortable with having a lot of our eggs in one giant housing basket.  I think I might need to track down Emily Doran from NZHL for a chat about what the clincher was for her and what was her tipping point to put emotion aside, concentrate on the math and actually put their downsizing plan into action instead of just giving it lip service like I currently am.  I will keep you posted…


Happy Saving!


The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of NZHL (New Zealand Home Loans).


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