Sell or hold?

Question from quinn updated on 9th January 2017:

My wife and I are in our early 40s. We only own a three bedroom home in Queenstown. We have around $145,000 left on the mortgage and approximately $450,000 of equity valued by the bank on the property. Homes similar to ours in the immediate area are selling for $850,000. We have a very large section which we plan to add a two bedroom rental on to shortly in order to increase equity and provide income.

District plan changes are set to allow us to subdivide the section in two to three years. This could mean the two bedroom rental is part of a separate title.We could possibly get three to four other titles on the section. We are mid to low income earners and will mostly have our equity to work with on the larger part.

Potentially, we can see more land becoming available around the time that the district plan is approved. This could mean more supply, and less demand, which could drop the value of our only asset. Would you suggest getting the best price now and going mortgage free or holding?

Our expert Kris Pedersen responded:

Queenstown does tend to be quite boom / bust in the way the cycles operate there, so timing is worth taking into consideration. If what you are saying above is correct then you should have closer to $700,000 of equity - that being the $850,000 mark that you have said similar properties are selling for minus your debt level.

As you already own the land you want to run different models to see which option will work out best for you. One option is establishing if you can just complete the build for the additional dwelling and leave the subdivision. This would assist from a servicing point of view but would limit the equity growth. Compare this option against the option of completing the subdivision - which would increase your equity levels further, but would be unlikely to assist from a cashflow point of view.

You should then extrapolate these scenarios our further depending on how many sections you could potentially cut the property into and also what level of risk you are willing to take on.


Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies.

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