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To keep or sell our only rental?

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  • To keep or sell our only rental?

    We are a sole income family, I earn approx 85k and have a wife and two young daughters to support (2.5 years and 9 months).

    We’ve got our own home (700k value, 300k loans) and a rental that makes 1-2k or so net profit, its 550k value with $270k loans. Owner occupied in Papamoa and rental in central Tauranga.

    Our spending when you factor in paying P&I on both properties (bank won’t switch us to interest only and with our single income through a broker we can’t refinance to another bank) is break even with our income. Some months we spend a bit more than we earn when P&I factored in.

    We’ve got 200k or so in KiwiSaver and only 10k in revolving credit for any emergencies (car is beyond repair, medical bills, large uninsured house expense, etc). Nothing else set aside.

    We are therefore considering selling the rental. It was bought on 4.9% yield and with price increases (380k to 550k) is now 4.3% yield. It’s in a unit block of 3 and it’s getting tired and needs substantial retaining walls (7k quote), bathroom upgrade in next few years as old and causing R&M cost, etc, so not exactly the greatest investment. I know you shouldn’t rely on capital gains to make the investment worthwhile but you’d be silly not to factor it in.

    The only reason we are reluctant to sell is because the borders are arguably going to open within the next 3-6 months which could spike another capital gain increase in prices and we’d be kicking ourselves having sold and put it into a share market index fund.

    Our minds fairly made up that we will sell it. If we were to buy residential property again in future we’d be a lot more picky on finding a suitable investment on numbers and yields. However for our current life situation running on a thin line of lots of assets but no readily available cash I’m just wanting reassurance I suppose that we are making a logical decision
    Last edited by House Hunter; 02-10-2021, 08:27 AM.

  • #2
    Sell it. Pay off your own mortgage.
    Residential rentals are no longer a business.
    The three most harmful addictions are heroin, carbohydrates and a monthly salary - Fred Wilson.

    Comment


    • #3
      I'm no broker but there are rules bank's are supposed to adhere to if someone is struggling with a mortgage as in re setting the mortgage/s and moving to an interest only period.

      You may want to get a second opinion from another broker

      Once that properties gone in your financial position there's a good chance it's gone forever.

      Also if you can lease it to a community trust / Kai anga ora after repairs etc you are exempt from new tax rules on interest losses.

      So if you are able to hold the property rents and incomes will eventually increase.

      If you can get through this tough period as all investors go through you won't regret it in 10 years.

      Comment


      • #4
        Sounds like you are doing a good job thinking through the implications, especially financial. If you decide to hold it for a bit longer, and then face costs that turn net rents negative, those losses are now ringfenced. And forfeit if you sell the only rental unless in future you have another rental making a profit. Assume bright line is not relevant?

        Also bear in mind the costs of selling and then later buying another rental (if you do). Hard to see the attraction of rentals under this government - more costs, more compliance, more risks, potentially a lot more hassles = stress.

        Couple of articles in the media recently about BOP landlords selling up.


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        • #5
          Firstly good on you for trying to advance yourselves with property.
          When you decided to buy a rental you would have had your points for and against, by all means do revisit this.

          We were in a similar situation in 2009 when capital gains all but stopped for 6 years post the GFC in Wellington, we held our nerve and now 12 years on life is so much better, we would be kicking ourselves had we thrown in the towel. We had two young children and my wife was doing in house childcare to make ends meet.

          Remember governments do change, inflation is your friend with debt, building costs are not going backwards and follow the fantastic economist Tony Alexander, he knows his stuff. All the best.

          PS Don't ever let insurance lapse, I would be starving first????

          Comment


          • #6
            One real risk of selling your investment property is that you might not be able to easily buy it back in the future. Its getting harder and harder to borrow money to build a portfolio as banks tighten lending criteria. They are using this approach instead of increasing interest rates as much as they would have in the past. I would even go as far as to say that the lending criteria is being designed to flatline the market. If I was in your position I would try to extend your overdraft buffer to 30k- 40k and keep the rental.

            Comment


            • #7
              ^^ as the saying goes…. You lose when you sell.

              Even if it feels like a win at the time, it won’t be long before it doesn’t.

              cheers,

              Donna

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              • #8
                I’d try and keep them both, there is a quote from someone saying “the best time to sell is never” or something along those lines.
                "DEBT BECOMES IRRELEVANT WITH INFLATION".

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                • #9
                  Although everyone’s circumstances are different, my view is you work so hard to get the asset, selling them would be my last option.
                  "DEBT BECOMES IRRELEVANT WITH INFLATION".

                  Comment


                  • #10
                    Dig in and prepare to tough it out for a few years. Many of us here have done this in the past, and thus are still in the game. If it turns out you didn't need to, then you're in a better position. You can always sell later if needed. But first, make sure you and your wife are in agreement with this strategy. Then adjust expenses and income accordingly.
                    Last edited by Hound; 06-10-2021, 03:01 PM.

                    Comment


                    • #11
                      Originally posted by Hound View Post
                      Dig in and prepare to tough it out for a few years. Many of us here have done this in the past, and thus are still in the game. If it turns out you didn't need to, then you're in a better position. You can always sell later if needed. But first, make sure you and your wife are in agreement with this strategy. Then adjust expenses and income accordingly.
                      Great advice.
                      "DEBT BECOMES IRRELEVANT WITH INFLATION".

                      Comment


                      • #12
                        Just a thought where are your units househunter?

                        The only reason we are reluctant to sell is because the borders are arguably going to open within the next 3-6 months which could spike another capital gain increase in prices and we’d be kicking ourselves having sold and put it into a share market index fund.
                        I would be too.

                        cheers,

                        Donna
                        Email Sign Up - New Discussions, Monthly Newsletter, About PropertyTalk


                        BusinessBlogs - the best business articles are found here

                        Comment


                        • #13
                          Originally posted by Jeffa View Post
                          I'm no broker but there are rules bank's are supposed to adhere to if someone is struggling with a mortgage as in re setting the mortgage/s and moving to an interest only period.

                          You may want to get a second opinion from another broker

                          Once that properties gone in your financial position there's a good chance it's gone forever.

                          Also if you can lease it to a community trust / Kai anga ora after repairs etc you are exempt from new tax rules on interest losses.

                          So if you are able to hold the property rents and incomes will eventually increase.

                          If you can get through this tough period as all investors go through you won't regret it in 10 years.
                          But what if we invest in a diversified index fund? 8-10% or so on average.

                          With our current say 50% gearing, we are making cashflow wise less than 1% income so need to be making 4-5% capital gain for a prolonged period to make more returns than index funds and all our eggs are in one basket?

                          Comment


                          • #14
                            Originally posted by donna View Post
                            Just a thought where are your units househunter?



                            I would be too.

                            cheers,

                            Donna
                            In Judea, Tauranga

                            Comment


                            • #15
                              Originally posted by House Hunter View Post

                              But what if we invest in a diversified index fund? 8-10% or so on average.

                              With our current say 50% gearing, we are making cashflow wise less than 1% income so need to be making 4-5% capital gain for a prolonged period to make more returns than index funds and all our eggs are in one basket?
                              Yes I'm definitely into alternative investments.lts making more and more sense.

                              I invest in both, in fact I'm more focused on US companies.

                              They both have there positives and negatives.

                              The easy liquidity in shares keeps me confident of holding my real estate portfolio moving forward

                              You can use mortgages and margin to accelerate your wealth, margin is risky but use a broker to help.

                              Depending on your risk tolerance and age you should be aiming for higher than 8 to 10% return on your shares.

                              I have a medium tolerance and I try to beat the sp 500 market which is 15%. I aim for a 25% return,(easier said than done)

                              I've made millions in property but it's still annoying having to spend 5 to 10 k every time a tenant moves!

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