Hi Brendon,
You raise good points there. Its all about balance and what you want out of life.
There are many option. Having no debt is one of the best options because the way the market and interest rates are going now, having a lot of debt down the track may end up costing you more.
Like u said u can buy a home for 200kish pretty much outright, that means u have alot of equity. Now depending on how long you want to work for, and like you said ur knees are bad, i would try and work towards setting urself up so that in the next 7 yrs you can work less and still get the income.
With that money i would do the following. Use 75% of it to buy 2-3 investment properties (around 120k-180k, nice small unit that u can rent out for close to 200 pw.) now you have to find the portion of money to borrow to money to put down as a deposit, so that u end up positive gearing it.
You use the remaining money to maybe fix up the places a bit, and also rent out a place for at least 2 yrs max. In this time the properties you bought will increase in value, and if uve geared it right, will be able to buy another one, or sell and buy a bigger house. The main thing i would aim for is having them paid off so that u get a constant income from them and then can concentrate on ur health
Anyway hope that make sense. There some good financial planners out there that can come up with good ways of spending 200k and making more money from it.
if u do end up buying some, ill look after the properties for u at a special rate
catch
vange
PS Another note, with interest rates, ppl that have bough properties etc in the last 4-5 yrs will get affected the most and that will cause property prices to go down in the next 2 yrs, so thats the time u need 2 buy.