Cutting losses in Christchurch
Question from Adam & Lisa updated on 18th December 2017:
We own a house in Auckland and we also have a new rental apartment in Christchurch. When we signed up for the Christchurch property (off the plans) we were informed the rent would be in the mid low to mid $500 per week. Now, after two years, we've had to lower the rent just to keep tenants because demand has dropped off now.
We don't mind topping up the rental mortgage a bit. However, it’s now hurting us. We are trying to ride this through but it has become a burden. As far as we know, these new apartments in central Christchurch haven't even had capital gains. We've had to take a buffer loan out so we can still top up without going into overdraft.
Should we just sell the property and make a loss (or break even if we're lucky)?
Our expert Kris Pedersen responded:
This is a hard one. My understanding is that Christchurch is experiencing quite a bit of oversupply with both prices and rents coming back. You need to look at what you have already potentially lost and then look at also what you will also give away in regards to sales costs.
Given you are topping it up I am picking that you probably are eligible for a tax refund. Make sure you have this structured so that your tax rate is reduced so you have better cash flow throughout the year rather than just receiving a refund after the end of the tax year. You may also want to weigh up whether or not you want to structure more of your overall debt on an interest only basis if you currently are paying principal and interest for part or all of your debt.
On the flipside, if you are feeling that cash flow is tight now remember that we are still on quite low interest rates. That means that if they were to rise further then you would be feeling the pinch even more. This may suggest that selling might be worth considering.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz