Advice please - sell vs leverage and rent out

[motiv8]

Will try to keep this brief...
We bought a house in Browns Bay Auckland for 415K under a year ago. It was a tired investment property and we've spent 20K so far, building two decks and general tidy up. Given the prices booming in the area we'd be looking at making a profit if we sell. REA appraisal was between 460-480K. My parents are very keen to buy it off us as a rental as it will be positive cashflow. Also the extra bonus for us is it means we'd avoid paying any agents fees. Husband and I are in two minds as to what to do. We're currently on one income (have 2 littlies) although its a fairly high income. After being here for a year its become apparent the house is not ideal for us and even with the decks, the outdoor areas are not great for kids.
Option 1 - sell and take our decent deposit elsewhere
Option 2 - rent it out and leverage of it which should give us at least a 10% deposit for a more suitable property in Hibiscus Coast/Whangaparaoa.
We know the area is ideal for having a rental and the capital growth we'd get long term would be fantastic. Its just that trade off of the risk of leveraging, which we have no experience in!
Any advice/opinions would be appreciated.

[TheLiberalLeft]

Is it in Rangi zone?

[motiv8]

Yes its just inside Rangi zone.

[Maccachic]

Why don't you go and see a broker and find out what you can borrow in either situation?

[motiv8]

Good point thanks, should we get a proper valuation done first?

[speights boy]

How are your parents deciding how much they will pay?
Are the proceeds from it being a private sale all going to one party, or will it be split?

[spaceman]

FWIW......I'd keep and rent out the first place....then get your parents to buy a property that is more suitable/you like and then rent it off them.

That way you don't have a "PPOR" so the interest on both mortgages would be tax deductible.

Cheers
Spaceman

[DBrown]

FWIW......I'd keep and rent out the first place....then get your parents to buy a property that is more suitable/you like and then rent it off them.

That way you don't have a "PPOR" so the interest on both mortgages would be tax deductible.

Cheers
Spaceman

^^ Winnnnnnnner!

[speights boy]

Hmmm.
Having the Mother-in-Law as the landlord.
Let us know when it's on Dr Phil.

[hawkeye]

Would the IRD consider it a sham?

[spaceman]

@ Speights boy.....does your wife know how you think about her mum???

@ hawkeye....I'd be much more worried about possible family issues as alluded to by speights boy, than the IRD. Unless property investment has suddenly automatically become tax avoidance.

Cheers
Spaceman

[Re@der]

You have a longer term issue if you buy houses and fix them up to sell. ie You are a house trader and should be paying tax on the gain that you make less the expenses.

If this provides a good rental return I would keep it and move ahead to the next rental to buy fix up and rent out. If you occasionally get it wrong and realise that the return is not good enough and sell it that is ok because your intention was to rent it out and you can show that is what you have done in the past..

[motiv8]

Thanks for the advice, particularly Doug's!
We've decided to keep it and revalue it next year, hopefully we'll enough equity by then to buy something else. Otherwise we'll just sit tight till we do have enough equity.
I'm pretty sure we'll be kicking ourselves in years to come if we sell it.