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  1. #1

    Default Equity Release from rental to own home

    Hi all, We became investors 2 years ago when we did the sums in a flat Auckland Market and realised it really wasn't worth selling our family home (in New Lynn) given the money we had spent fixing it up. We sold it to ourselves as a company, bought a 2nd house in the same suburb, of lesser value (smaller) and as a result the interest free mortgage on the first house is covered by the rent and our personal mortgage has been much reduced.

    Fast forward 2 years and happily both properties have gained in equity and we have had the same good tenants for 2 years. However our personal income fluctuates greatly (self-employed) and we need to take steps to keep ourselves sliding backwards. We don't want to sell the investment, as a purchaser would soon pick apart the unpermitted downstairs (yes we were that naive when we bought it) and various other eccentricities that come with an old home. Also on advice of the agent that found our tenants she would rent it at $50 more per week if renting it out again now. We don't want to change or lose tenants though.

    So should/can we take the equity gains out of the rental and add that to our personal mortgage - reducing that and saving us some money week to week? Is this actually allowed and/or a good idea as a short term fix? We are waiting for our personal incomes to improve before we do the obvious and use the equity in the rental to buy another investment property. We are not in a desperate position but want to maximise our finances so any advice welcome.

  2. #2
    Join Date
    Aug 2010
    Posts
    2,630

    Default

    How would that make a difference? I don't believe you can claim that new mortgage interest (on the re-taken equity) as a deductible expense because it's not used to fund income-producing assets.

  3. #3

    Default

    Thanks that is the kind of advice I need - I guess our only option is to increase our rent and make a little extra income per week at the risk of losing our tenants?

  4. #4
    Join Date
    Aug 2010
    Posts
    2,630

    Default

    Or sell the rental, take the hit on the issues, pay off the personal mort and get yourselves back on track without worry. Do this before it becomes necessary/stressful.

  5. #5
    Join Date
    Sep 2012
    Posts
    227

    Default

    $50 extra per week rent is $2500 per year (based on 50 weeks)

    I charge good tenants a bit less that market rent but definitely nowhere near $50 off.
    There are plenty of good tenants out there.

  6. #6

    Default

    Ensure your mortgage rates are competitive.

  7. #7
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,331

    Default

    People are desperate to buy just now, so they might not be worried about the unpermitted downstairs et al. I'd just declare it all upfront and it'll sell.
    Squadly dinky do!

  8. #8
    Join Date
    Jun 2004
    Posts
    10,415

    Default

    Quote Originally Posted by Davo36 View Post
    People are desperate to buy just now, so they might not be worried about the unpermitted downstairs et al. I'd just declare it all upfront and it'll sell.
    at the end of the day if it does become a problem to sell then don't sell and move to plan B. Don't just assume a problem that may not be.


 

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