New owners of Ako Early Learning Ingrid Ambrosiussen and Marc Brakenrig. Photo / Mead Norton
A first house or a first business?
That is the question many young Kiwis are grappling with as rising interest rates and the cost of property puts the goal of owning a home further out of reach.
Experts say whilst owning a home has been part of "Kiwi culture", owning a business can provide much higher returns over less time. Buying a business first could build the pathway to a first home.
But one financial advisor says Kiwisaver was the key to helping young people onto the property ladder, as saving without it for anything else was almost "mission impossible".
BDO Rotorua Director Stephen Graham said home ownership had been a large part of the Kiwi culture and was seen as providing security and solid returns for homeowners.
However, he said, home ownership was increasingly out of reach as prices and interest rates continue to rise.
"Young Kiwis are looking for other areas where they can invest funds for good returns, and business ownership can be an excellent choice.
"As an asset, a business can provide much higher returns over a shorter time period than a purchase of a first home."
Graham said with higher returns, a business owner would be in a position to buy a home at a later time but at a much faster rate than an employee earning a set salary or wage.
"There are still cautionary words with any business, as business ownership is not necessarily the easy option.
"Whether buying a business or kickstarting your own business, young Kiwis need to be prepared to work long hours, sacrifice some wants and be prepared to fail in the search for higher returns."
That compared to a house, which Graham said rarely drops in value and therefore posed less risk, meaning banks may tend to be more favourable to issuing home loans.
"Once there is some equity in the property, this could be leveraged for a business investment instead of spending on home or vehicle upgrades."
Tauranga BDO Associate Linda Finlay said Kiwis traditionally relied on the property market for reliable capital gains.
"They used to purchase entry-level homes, wait for the value to go up, and then resell at a profit, continuing this cycle until they manage to have a decent home with a medium or tiny mortgage."
Historically, Finlay said, that had been a reliable and clear form of investing, ensuring financial freedom by the time they reached middle age.
However, she said, growth in the property sector had increased so quickly since the Covid-19 pandemic, it became unsustainable.
"House prices now fall outside the affordability of young Kiwis, and even if they do buy a house now, there is no guarantee that they will make any gains on the property."
Finlay said the prediction of house prices correcting to pre-pandemic levels would place new buyers at risk of falling into negative equity.
Rising house prices and tightening lending criteria had decreased the purchasing power of new buyers and pushed them towards using their available cash to buy a business instead, she said.
"We are seeing a trend where younger, more energetic Kiwis are purchasing businesses from business owners that are heading into retirement age.
"We find that business owners of our ageing population are somewhat averse to growing and investing in their business, safeguarding their assets for retirement."
Finlay said younger Kiwis had a higher appetite for risk and brought different experiences and perspectives on how to grow their business.
"These Kiwis are part of a generation that grew up with ever-changing technologies and are more aware of the global markets and how to reach them.
"We find that when the new business owners utilise these unique skills in their venture profitability tends to increase."
Once the business was established and the assets could be leveraged as a deposit, owners tended to buy their first homes.
"We are not seeing a decline in young Kiwis purchasing homes, however, we are seeing a change in the trend of how they acquire them."
Leader of ABC Business Sales Tauranga and Bay of Plenty, Linda Harley, said most business sales in the first six months of 2022 were to "working owners" rather than investors wanting passive income.
"Our challenge is to have sufficient listings to offer the buyers who we have on our books looking for businesses.
"Our inquiry rates continue to be high from those living outside Tauranga, wanting to relocate to the area."
Harley said young Kiwis would be able to generate more wealth if they had a business rather than a house.
"Return on investment from a business is higher than a passive investment in a home."
Harley said being an employee did not necessarily offer the security it had in the past.
"Taking control of your own destiny is much more rewarding.
"We are working with business owners in their early 50s, who have created significant wealth and a passion for their business.
"A well-developed business offers more freedom and flexibility than being an employee."
Harley said the total number of sales between January and June in 2022 compared to 2021 was similar.
"But interestingly, the market value of those sold in the first six months of 2022 is higher."
In 2021, 15 businesses ranging from hospitality, manufacturing, service and childcare businesses were settled.
That compared to 17 businesses in 2022, and there was a "good number" still working through due diligence, she said.
Harley said this year's sales were about 15 per cent higher in gross value than those sold at the same time last year.
The types of businesses sold ranged across sectors such as import distribution and online sales, franchise businesses, childcare, service businesses and an increasing interest in hospitality businesses now trading had improved, she said.
ABC Rotorua managing partners Scott Laurence and Greg Dunn said sales and average sale values had increased significantly during the last 2.5 years.
"This is due in part to us creating a greater presence in the region with a new office, and an increase in our broker team."
During the 2021/2021 year, the office facilitated 10 business sales at an average sale price of just under $500,000.
That number climbed to 14 sales in the 2021/2022 year with the average sale price also increasing "significantly", and their goal of reaching 20 or more sales was looking promising.
The pair said the ongoing impact of Covid-19 and tighter lending from banks presented some challenges, but they were working hard to get things across the line.
"Our team is currently working on or has recently settled a good range of businesses.
"These include the hospitality sector, accommodation providers, service industries, niche retail, trades, and automotive."
However, Rapson Loans & Finance Ltd Director Chris Rapson said, in his view, saving for a home without Kiwisaver was almost "mission impossible".
"If you buy a place for $800,000 and the market moves by about 10 per cent in your favour, very quickly it is worth $900,000.
"That extra $100,000 you have created just by having your name on that piece of paper."
Kiwisaver could only be used for first-home before retirement unless a person can prove extreme hardship, which was difficult to do, he said.
"Make the most of your Kiwisaver."
Rapson said many Kiwis wanted to own their own business but many also failed.
Buying a business before a first home would mean the business would need to provide an income that allowed a person to live the life they wanted while saving enough money to buy a property, he said.
If, for example, a tradie who had been working for someone for many years wanted to start up their own business, Rapson said to "go for it".
"But make sure you do your homework. Being in business is not just about offering a great service...
"I think people have more opportunity to create equity in a house than taking that risk in business."
Rapson said first-home buyers held the key to the property market and they just needed to be determined to save to make it happen.
"We all place a lot of value on instant gratification... coffees here and there...
"The determined ones know they can't control their incomes but they can control your expenditure on living costs."
A young Bay of Plenty couple has taken an unconventional journey in building their wealth.
They are prioritising business over property.
Marc Brakenrig, 30, and Ingrid Ambrosiussen, 29, moved to Tauranga from Christchurch to buy their first business - Ako Early Learning on Fraser St.
They hope investing and growing their childcare business will lead to being able to buy their dream home later on.
"We are building our wealth a different way," Brakenrig said.
Brakenrig, 30, grew up in Waikato and moved to the South Island for university, where he spent eight years building his career as a rural banker.
His goal, however, was to one day move closer to home.
An opportunity to become the Rabobank area manager for Bay of Plenty - which has offices in Rotorua, Whakatane, Taupo and Matamata - triggered the decision to move north.
So the couple decided to sell their home in Christchurch and start the property hunt in the Bay of Plenty.
"We started off looking at houses to purchase, however, once we sold our house in Christchurch we quickly realised that our money wasn't going to go nearly as far up here.
"That started us thinking about other options."
Ambrosiussen is a trained early childhood teacher and had always dreamed about owning her own centre.
As the pair was looking to move to the Bay, Ambrosiussen was in the middle of completing her master's thesis on the transition from early childhood to school.
"Once she was close to completing her thesis and we had decided that now wasn't a good time to try buy a house, that's when we started looking for a centre to purchase and created Ako Early Learning," Brakenrig said.
"We thought we were better to take that money from the house and put it towards something Ingrid was passionate about."
Brakenrig said the home ownership dream was now a long-term plan.
"Buying a business has been really rewarding."
By investing and expanding the business over time they will be able to buy not just any home, but their dream home. In the meantime, they will continue renting.
"It makes more sense to put profits back into the business, and long-term, buy the dream house.
"It is exciting to be investing in the future of Tauranga."
The pair took over the new business last month and have six staff.
Ambrosiussen said the business was going well and enrolments were building.
"It is very cool. Sometimes we have to take a step back, look at the signs and say: 'Wow, this is ours.
"We love it here. The beach is a big drawcard."
The couple spend five months a year in America running their business.