Author Topic: Should we rent it or sell?  (Read 812 times)

Foxy66

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Should we rent it or sell?
« on: July 07, 2016, 04:33:08 PM »
Hi everyone, I'm looking for some advice on buying a house and renting ours out.

I am 37, working part-time, and my husband 42 is full time. INCOME $5565 (after tax) per month between us, of which 4% of my husbands pay is in Kiwisaver ( retirement fund, employer puts in 3%), and mine is 5% which is matched by 6.75% of the employer.

We started these 3 years ago and currently have 23 000 in that.

We have a home with a mortgage of 70 000 on a revolving credit loan, so all our savings goes into this to pay it off quicker. The house is valued at 250 000.

We have 2 children, 11 and 9 and our household budget is as follows

Per month
Food -             1000 (food is much more expensive in NZ, although this could be closer to 800)
Phone and internet       150
Power            250
Insurance                 480
Petrol and car maintain       250
Drs, dentist,vet ect      100
Spending money      160
Childcare            100
Rates/property tax      150
School fees etc                40
Gifts, etc            150
Clothes/shoes         50

Total            2880
Insurance is for house, contents, car (1 car worth 4500, paid for), health, disability, trauma (pays 100K on diagnosis of several major illnesses) and life cover

Although to be honest it is usually more than that, around 3600 a month on average.

3 years ago, my husband was working with real estate investors at his work, and thought it would be a good idea for us to take a look at it ourselves. We spoke to investors, our bank and an accountant, and the plan was to buy a larger house (B) for ourselves, and rent our current house (A) out.

We would put the maximum mortgage we could on house A on interest only, and assuming we bought a house for around 350 000, that would leave us with a personal home mortgage of 170 000.

For house A the income/expenses were
Income       $300-320 a week = $15600 a year (I like to work on the lower end of the scale)

Expenses (yearly)
Insurance             $1000
Maintenance      $1000
Property manager   $1300 (I am not interested in doing it myself)
Rates                $1800
Mortgage 250k @6%   $15600

Loss of $5100 a year, or around $100 a week, which we would have to cover.Crazy right? My understanding is that many rental houses in NZ are negatively geared at the moment, due to the big increases in house costs, and everyone is counting on capital gains.

We bought a house, but during the settlement period, my husband had a car accident, and I panicked over affording the large mortgage and we ended up selling that house to another buyer and lost our 10k deposit.

This prompted me to discover MM, and thatís why we started our retirement fund, and we were going to pay off our house A, stay there and invest. For a while there, I was really strict on our budget and we reduced our mortgage from 100k to the current 70k, but we got a bit lax, and things started slipping. I think weíre somewhere in the middle between MM and the average consumer at the moment.

I was really regretting not buying house B, and our wee house A which had seemed fine for so long was now full of flaws, and I really wanted room to sit at the table to eat and play games. Our house is small and layout not great.

So we kept looking at houses, put an offer on another one (250k this time), which seemed more affordable, but it had structural problems, plus I had health worries at the time, so we didnít buy that. Last Xmas, we put an offer on another house, 280k, it was a nice house, but right next to a river and there had been a huge flood in our town so once again my worries got the best of me and we pulled out of that! We are getting sick of feeling we don't have a plan, and that we haven't maximised our earnings so far.


My main worries for renting out house A are that
-House A wonít even pay for itself
-Tenants smoking P which would completely make it worthless as an investment
-mortgage rates increase, costing us even more.
- our budget will be tight and at the moment we are comfortable with a buffer if things go wrong
- we will be paying the mortgage for another 15 years, when we could potentially be mortgage free in 2-3 years.
-what if we lose our jobs?

Balanced against that
- desire for a better house (our house is not flash or large by any means, we have room for one sofa in the lounge and it is getting more cramped as the kids grow). I have friends and family who have cancer and suffered losses, and I want to enjoy my life and be comfortable while I can.
- House prices have trebled since we first purchased our house 12 years ago, and I believe they will keep rising for a few more years at least and we could be missing out on a great chance to make money
-feeling we need to invest or do something!

Another option somewhere in the middle is to stay where we are and extend our house slightly - I am getting a quote for this, but I estimate it to be anywhere from 20k for a small modification, to 200k to make it everything I want.

So there it is. I think the best MM way, and safest thing is to stay where we are, pay off the mortgage and then look to invest in shares, bonds etc. But in the meantime we are eating dinner off our knees in the couch (which REALLY bugs me), and the kitchen table is never used.

My parents think we should sell our house A so we have room while the children are at home and upgrade, which would leave us with a mortgage of around 170 000, and we could downsize later on maybe freeing up 70-100k (although I know there are issues with that and it might not work out as well as that)

Riskier but potentially a bigger pay off is to rent A and buy B, the way the house prices are going, they could easily rise another 50 k in 2-3 years, and more long term. But I am very risk adverse.

Personally I am now leaning towards renovating A, or selling up and buying a bigger house. I know itís not the best financial move, but I feel itís the best balance.
 I would appreciate others feedback.

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