Plaster Home - Sell or Keep?

[Jellybean]

Hello PT members ...About 10 years ago in 2007 we moved to AKL from Tauranga. We had to buy a large home very quickly (over a single weekend) because DH work was reassigned to AKL and the parents decided to join us. We bought a new plaster (Tecknik under new building code) home in the North Shore near really good schools as the price was "reasonable". We are now building a new H&I for the family. At first we thought it would we would sell the plaster home. It has no problems and has been well maintained these past 10 years. Its value has increase hugely and we have v.good equity in the home. We should be able to rent it out in the $900-$1000/week range. Do we keep or should we try and off load because its plaster?

[Bobsyouruncle]

If it's not leaky and will perform as an investment keep it. Cost of acquisition and disposal always hurts......

[Kbkiwi]

Hello PT members ...About 10 years ago in 2007 we moved to AKL from Tauranga. We had to buy a large home very quickly (over a single weekend) because DH work was reassigned to AKL and the parents decided to join us. We bought a new plaster (Tecknik under new building code) home in the North Shore near really good schools as the price was "reasonable". We are now building a new H&I for the family. At first we thought it would we would sell the plaster home. It has no problems and has been well maintained these past 10 years. Its value has increase hugely and we have v.good equity in the home. We should be able to rent it out in the $900-$1000/week range. Do we keep or should we try and off load because its plaster?

Is the likely net return (rent - less expenses and tax) - more or less than the mortgage rate on your new property? In other words, if you sold the place and put the equity into your new H&I property would you be better or worse off?

Also, what are your property investment goals? Are you investing primarily for cashflow or capital gain potential? Will a potential rise or fall of your north shore property value over the next few years affect your decision? Is there any potential for generating a bigger return from your north shore property? Can it be subdivided or can you add a minor dwelling?

[Anthonyacat]

Sell, no matter what all the above.

But whether you sell to an external company, or to a related company or trust, is the true question that KBKiwi and BYU are angling at.

If you decide to keep it, talk to your accountant about a restructure. Great opportunities for reducing the cost of your PPOR mortgage.

[Jellybean]

The NS house is in a family trust and if we mortgaged it to the maximum (and put the equity in the PPOR) the net return will be less than the mortgage rate. But I understand that some of this can be written off against tax. Yes we would put the equity into the PPOR. This investment would be more for capital gain potential as the cash flow will initially be negative. Both my husband and I are health professionals so could probably weather a drop in the property market to some extent. The section does have the potential to add a minor dwelling (just its 650m2!) but it will be a tight squeeze. The math all works out - the hang up is that it is a plaster home and we wonder if long term this is a great disadvantage?

[Jellybean]

Sell, no matter what all the above.

But whether you sell to an external company, or to a related company or trust, is the true question that KBKiwi and BYU are angling at.

If you decide to keep it, talk to your accountant about a restructure. Great opportunities for reducing the cost of your PPOR mortgage.

Decided to keep the house which is in a family trust. But thinking that if we sell it into our LTC then we will only get 60% of its value. (I'm thinking....) If we keep it in the trust I can draw down the whole mortgage or close to 100% its value (hopefully as this mortgage is like 10 years old) and put into my PPOR when its complete. Will I still be able to write off some of the interest against tax the way we do with the LTC company? Also when this house rents out it will be an active "business" within the trust. What implications would this have?

[Grads]

Having owned both residential and commercial property with plaster cladding my advice is to sell plaster home and re-invest any profit asap. My reasons include;

AKL market is at an all time high, market could increase more however it could also dip and slump. If market deteriorates any plaster home will sit for very long time and be worth less.

Your plaster home is not worth what you think it is worth. You can only compare its value based on sales of similar plaster homes. It doesn't matter if your home has had no leaks and moisture levels are normal, fact that it is plaster cladding makes property require higher maintenance and greatly increases risks of weather-tightness issues.

Try and sell your property and experience for yourself what it is like to sell a plaster home (it does not matter how good an area / schools are) property is only worth what someone is prepared to pay for it. Many buyers will see fair value is the land value (not improvements).

If you keep plaster home and leverage against it (no matter what entity restructure) you are greatly increasing your risk which is not prudent for any future 'what if' event which require you to have to sell property.

If you keep plaster home make sure that lender does not have security over your new H&I (or you are risking new family home). Banks / lenders also know extra risks associated with plaster properties and will lend less against them (assuming lender has full disclosure).

By keeping plaster home will slow down your long-term property goals and overall objectives.

[Tomo]

If your plaster house has no weather tightness issues why would you sell? Where else could you get a better return on your equity at present?

[Jellybean]

AKL market is at an all time high, market could increase more however it could also dip and slump. If market deteriorates any plaster home will sit for very long time and be worth less.

Your plaster home is not worth what you think it is worth. You can only compare its value based on sales of similar plaster homes. It doesn't matter if your home has had no leaks and moisture levels are normal, fact that it is plaster cladding makes property require higher maintenance and greatly increases risks of weather-tightness issues.

I hear what you saying GRADS! And you could very much be correct. This was a concern of mine as well which is what prompted me to ask the PT members their views.
But I have had another rental H&I plaster house in the NS for 5 years now that gets us $$1100/week. Once I rent out this home, I can potentially gain another $850-$1000/week. Those are decent values for something I purchased 5 years and 10 years ago. The biggest thing for us is that it will reduce the debt on my PPOR and still allow us to claw back 33% on interest expenses - monies that will all go to pay off a brick and weather board H&I house (the PPOR).
It is not ideal as all 3 homes are in NS - so yes my eggs are in one basket. However if the interest rates stay low for another few years (and it seems it will) I can pay off my debts.
The land is the valuable asset. At some point the cost of re-cladding may become worth it...or perhaps add a minor unit on/sell/remove/rebuild multiple dwellings....we will see in 5 years time or once we pay off PPOR.
It is a gamble but we now know not to buy plaster homes. 10 years ago it was the only way we could afford a large home in Auckland. I think getting a 8-10% return with rent is ok for now. I won't buy in the present market so these "investments" will have to do until I free up the PPOR.
Who knows the cycle may still reach a new high in 2-3 years....