The Kiwi Bach – a Dream or Drag on Finances?
While the good old bach embodies the Kiwi dream, it’s essential to scrutinise its feasibility as a sound investment. By James Blair.
21 November 2023
The allure of owning a bach runs deep in the veins of New Zealanders. For most, it symbolises a hallmark of success and serves as a retreat where summer days are whiled away with loved ones, weaving an intricate tapestry of cherished memories.
The bach is a sanctuary, a place of familiarity, ease, and a profound connection to the sea and sand. Some even see it as an enduring asset to pass down through generations, preserving a slice of family history.
Is a bach a viable investment?
While the bach embodies the Kiwi dream, it’s essential to scrutinise its feasibility as a sound investment. The stark reality is that baches are often deemed “lazy assets” within the context of one’s financial portfolio. Unlike conventional investment avenues such as properties or businesses, a bach typically fails to generate income or appreciate in value at a rate that justifies the investment.
Let’s dive into a hypothetical scenario to illustrate this conundrum. Imagine a 40-year-old couple with a combined annual income of $380,000, bearing a $600,000 mortgage. Their objective is clear – retire comfortably at the age of 55 while also securing a bach worth $1 million. Should they opt to acquire the bach, they would find themselves tethered to full-time employment until the age of 65. However, if they forgo the bach purchase, they could potentially achieve their retirement goal by the age of 55, emerging more than $2 million richer.
Debunking the Airbnb myth
Some may argue that the bach can be an income generator via Airbnb rentals. However, this notion is not as straightforward as it seems. Baches are typically subject to seasonal demand, with peak interest during the summer. Renting out a bach during the winter or the off-season can prove to be a formidable challenge. Regulations governing short-term rentals can also shift, potentially hampering the ability to capitalise on Airbnb income.
One of the paramount financial quandaries associated with bach ownership is the cost of debt. Almost invariably, a bach purchase entails securing a mortgage, and the interest accrued on this debt can be substantial. To illustrate, a bach valued at $1 million with a 7 per cent interest rate would incur an annual interest expense of $70,000. You could allocate $25,000 annually for travel anywhere in the world and still be better off every year.
The bottom line
The decision to acquire a bach hinges primarily on your overarching financial strategy and priorities. Should your objectives encompass early retirement, providing financial support to your offspring, and securing a bach, compromises may be necessary.
It is imperative to possess a lucid understanding of how purchasing a bach will reverberate throughout your broader financial objectives. Keep in mind that there is no absolute right or wrong decision; it’s about making well-informed choices that align seamlessly with your unique financial circumstances and aspirations.
In conclusion, owning a bach can undeniably be a gratifying lifestyle choice. However, it is equally important to acknowledge that it may not universally represent the most astute investment decision. Whether you elect to embrace the Kiwi dream of a bach or prioritise other fiscal ambitions, the crux of the matter revolves around a conscious awareness of the trade-offs at hand.
Ultimately, the key is to make choices that resonate harmoniously with your financial future.
Note: this story was sourced from Lighthouse Financial.
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