Young Aucklanders want to buy houses, and that’s a great goal for a rent-free retirement. New Zealanders in general view houses as a safe, reliable investment in their own future. But few young Kiwis buy businesses. They’re seen as risky, unreliable and potentially stressful – and although that’s a worst case scenario it can certainly happen.
House = good, safe investment. Business = not so good, risky investment.
However, I really think that we’re doing young Aucklanders a disservice by promoting this simplistic view of both the housing market and running a business.
A business is more risky than a house. But it also has the potential to make a lot more money. It can provide you with a healthy income, assets, job security, and the possibility of building a valuable saleable company. There’s not necessarily a cap on a business’s profits. And if you want to build up a deposit and buy a house, owning a business could be a great way to make that happen.
I have several millennial clients who are café owners or electricians, for example, and they have used their business income to help them buy a home. As your business grows and starts to make more money, provided you can prevent your style of living from escalating concomitantly, you can put aside your additional earnings to help grow your 20% deposit. Saving your extra income when you’re an employee can be more difficult. Once you’ve been building your company for several years and you can prove a reliable cashflow, a bank will probably feel reasonably comfortable that you can service a mortgage.
Banks simply don’t believe in business the way they believe in real estate. The ease of borrowing for houses is one of the contributing factors to high levels of housing unaffordability. Banks won’t always lend to a millennial to buy a thriving business, even if the bank would lend that person hundreds of thousands of dollars to buy even the most decrepit property. There are ways to work around this, which I’ve used with my clients on occasion. One option is a combination of bank and vendor financing, which can help an owner transfer ownership of their business to a fresh young face (often a very talented staff member). I’ve helped facilitate this in the past and it can be an excellent alternative to full bank funding.
If you can get past the hurdle of financing your way into the business, the business may be able to get you past the hurdle of financing your way onto the housing ladder.