Riding out low cash flow
Question from Sean updated on 12th December 2016:
I own my own home in Auckland, two rentals in Hamilton (main house and minor dwelling) and one in Tauranga. I have had all my properties recently valuated (and all the houses are making a great increase in value) as I planned to sell them to an LTC and pay off a lot of our home mortgage.
If I do that they will be negatively geared (5% gross yield Tauranga, 6% yield hamilton houses). Next year will be a difficult one cash flow for us as I have to change jobs which is likely to mean a paycut and my wife not working when she has a baby. So I have been toying with the idea of selling the Tauranga property and putting the Hamilton one in the LTC as it can look after itself with the rent.
Should I be holding all the properties and trying to ride out our low income period? I fear that if we decide to hang on to them and money gets too tight we may have to sell and if the market drops, the bank may decide to sell our personal home if we are unable to sell the Tauranga property.
Our expert Kris Pedersen responded:
I think you need to take more advice than just my answer here as there could be more that you need to take into consideration.
But with your stated chance of cash flow stress, selling may be a worthwhile option.
You could split bank your personal home away from the rentals to at least give you more security there. However, with the recent signs of banks tightening, freeing up some capital may not be the worst idea.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz