Sell or keep as rental?

[PennyPicker]

Hello,

Six years ago I brought a property in Linwood Christchurch (eastern suburbs). In the last year I've renovated it, new carpet, painted internal walls, redone the kitchen and in the next couple of months I'll do the bathroom. A 23 year old house will be in very good nick. I've been careful not to overcaptilise.

There is a small region of brick that needs to be reclad from the Feburary earthquake, but otherwise the house is fine. It's in the green zone.

I had originally hoped to sell the property to a young professional or couple as it's very close to the city centre (just outside the four avenues), local bus routes, etc. However without a CBD that plan doesn't work.

I'm looking at moving in with my girlfriend and have therefore been thinking about renting the property. My question really revolves around whether you'd think it's worth holding on to the property as a long term rental or whether I should aim to flick it on.

Figures: 92m (I think) living space. 2 bedroom, lounge living area, garage and secure back yard.

I paid 190k for it six years ago. the GV is 207. I'm sure with the renovations, both internal and external I could get a resonable amount more (am thinking 230k). I am going to get it valued later this month.

Looking at other rental prices in the same neighbourhood for similar dwellings I could get enough rental to pay the mortgage, maybe even the rates.

I 'assume' the rental market in Christchurch is in favour of the owners at the moment but don't have any real facts to back this up.
My house would be ideal for an older couple, perhaps displaced by the earthquake but wanting to remain in the eastern part of the city.

My thinking is that there's much scope for captial gain on this property. Therefore, why pay out lots in interest on the mortgage when I could take my winnings and move up the ladder or even build new. i.e. if I hold on to it for 10 more years am I going to lose the capital gain in interest repayments.

My question is, do you agree, what is the gain potential on a property like this and am I better off selling?

Thank you,
PP.

[PennyPicker]

I know it's pretty rough, but when I key figures in to this sell/rent calculator it says sell.

http://www.forbes.com/fdc/rentorsell.shtml

Assuming rent of between $350-$400, no taxes, annual costs of $5000, property value of 207k - 230k.

(From a purely financial perspective) Is it this simple?

PP.

[fungus pudding]

Hello,

Six years ago I brought a property in Linwood Christchurch (eastern suburbs). In the last year I've renovated it, new carpet, painted internal walls, redone the kitchen and in the next couple of months I'll do the bathroom. A 23 year old house will be in very good nick. I've been careful not to overcaptilise.

There is a small region of brick that needs to be reclad from the Feburary earthquake, but otherwise the house is fine. It's in the green zone.

I had originally hoped to sell the property to a young professional or couple as it's very close to the city centre (just outside the four avenues), local bus routes, etc. However without a CBD that plan doesn't work.

I'm looking at moving in with my girlfriend and have therefore been thinking about renting the property. My question really revolves around whether you'd think it's worth holding on to the property as a long term rental or whether I should aim to flick it on.

Figures: 92m (I think) living space. 2 bedroom, lounge living area, garage and secure back yard.

I paid 190k for it six years ago. the GV is 207. I'm sure with the renovations, both internal and external I could get a resonable amount more (am thinking 230k). I am going to get it valued later this month.

Looking at other rental prices in the same neighbourhood for similar dwellings I could get enough rental to pay the mortgage, maybe even the rates.

I 'assume' the rental market in Christchurch is in favour of the owners at the moment but don't have any real facts to back this up.
My house would be ideal for an older couple, perhaps displaced by the earthquake but wanting to remain in the eastern part of the city.

My thinking is that there's much scope for captial gain on this property. Therefore, why pay out lots in interest on the mortgage when I could take my winnings and move up the ladder or even build new. i.e. if I hold on to it for 10 more years am I going to lose the capital gain in interest repayments.

My question is, do you agree, what is the gain potential on a property like this and am I better off selling?

Thank you,
PP.

Nobody knows that, but it's unlikely to be high. And remember that in ten years of tenancy all the renovations will be looking pretty tired. I just can't get excited about residential property at the moment - all the signs are pointing the wrong way IMO. But then, with Christchurch, it's crystal ball stuff to know the outcome. Certainly there will be big tenant demand over that time from imported builders and tradesmen. Also shortage of owner occupied stuff. Those are pluses. On the downside - rates MUST rise in Ch-ch, and insurance could prove a nightmare, both when owning and more-so when selling in future years. So there you go - I haven't got a bleedin clue, but my gut feeling is sell :-)

[buns]

PP

What I would do is a simple exel calc with a cash flow comparison of two options.

1. Hold and rent
- Over 5 years work out the cash flow it produces for each of the 5 years, assuming a sale at year 5.

2. Sell and save
- Over 5 years work out the cash flow a savings account would produce, assume a sale in year one with that money put in a savings account earning say 4% PA compounding.

Deduct the sum of option one from the sum of option 2. And then google 'NPV' or 'Discounting cash flows" to work out what that money is worth to you today.

I can tell you right now the capital value of the house would need to be growing at more than 5% for it to outweigh the sell and save option as that option gives you cash today which will begin compounding over the next 4 years. I'm thinking a $200k odd house like you have described would have yields of at least 5-6%.

Even if option one returns more, say $50k. You need to ask yourself, is all the hassle of renting and stress of selling this in 5 years worth $50k?

You probably need to think about this more, and find out all those 'facts' you don't know just yet as they will help you build assumptions for the excel calc

[PennyPicker]

Thanks for the help team. On reflection, and after doing the math the sensible decision is 'sell'. I'm going to start heading down this route.

Cheers, PP.

[Financially dependant]

Thanks for the help team. On reflection, and after doing the math the sensible decision is 'sell'. I'm going to start heading down this route.

Cheers, PP.

Yes that would be my decision, get the cash out and make it work for you....the younger you are the more risk you should be taking..

[buns]

Thanks for the help team. On reflection, and after doing the math the sensible decision is 'sell'. I'm going to start heading down this route.

Cheers, PP.

Mate

You sound so easily influenced. don't be, this is big money. It's your money, you know the facts. Act on them.

Random buy/sell's from the crowd are pointless. Don't reflect on those. We can only help you in the decision making, as you hold the facts.

Based on your numbers, it seems obvious to HOLD!

Assume you can sell the house tomorrow for $215k, and compound that cash at 4% Pa - you get about $260k

Assume you get the midpoint of that rent, less $5k costs. So $14.5k a year or 7% yields. And keep this up for the 5 years and sell at $215k - you get something like $275.

So another $15k on easy assumptions. Once you add on the upside from these renovations, plus some underlying value of the house - and it all leads to a HOLD.

[fungus pudding]

Mate

You sound so easily influenced. don't be, this is big money. It's your money...............

Actually, if you read the original post, you'll see it's the banks.

[buns]

Actually, if you read the original post, you'll see it's the banks.

How did I miss that!

Yip, that changes things. Deduct the interest from the HOLD scenario's cash flows.

[fungus pudding]

How did I miss that!

Yip, that changes things. Deduct the interest from the HOLD scenario's cash flows.

All landlords should watch TV2 at 8 p.m. this evening. They're promoting a program called The renters. Don't know if it's a new thing or whast - but the promo looked 'interesting'.