Liz Koh: One home to live in one to invest in

Investment properties are common in New Zealand.

Generations X and Y, who are more concerned with freedom than security, are more likely than their parents to want to rent. New Zealand has one of the highest rates of home ownership. More than 60 per cent of households are owner-occupiers.

The millions of dollars spent each year on DIY projects is evidence of the pride we take in our homes and also of the belief most Kiwis have that their home is an investment they can sell later in life to help fund retirement.

The high rate of ownership is, however, declining with the rapid rise in property prices and more transient lifestyles. Generations X and Y, who are more concerned with freedom than security, are more likely than their parents to want to rent.

Most wealth creation experts agree that property is a good investment. Many also argue, however, that the home you live in is not strictly speaking an investment.

Although your home will increase in value over the long term, the money you have invested in your home can often produce a better return if it is invested elsewhere.

For example, if you owned a home that could be sold for $600,000, you could potentially get a better return on your money by buying two houses or a house and flat with the same total value, one of which you live in and one of which you rent.

If you took this approach to the extreme, your best strategy would be to live in cheap accommodation, which would lower your standard of living.

Bear in mind that, in general, the more money you have invested in the home you live in so as to enjoy a good lifestyle, the less wealth you will create for later enjoyment.

Property ownership helps create wealth and security, but get the right balance between living comfortably now and creating wealth for the future through investment.

* Liz Koh is an authorised financial adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free by calling 0800 273 847. For free e-books see moneymax.co.nz and moneymaxcoach.com.