Is now the time to sell my apartment?
Q.We have a three-bedroom apartment in Wellington, which I purchased in early 2014. A year later I bought another two-bedroom apartment as there were just two of us and we wanted to downsize. We moved into the two-bedroom apartment in late 2016 but my wife got pregnant and wanted to move into the suburbs for better access to parks and less noise. We have been living in a rental place for the last two years and both my apartments in the city are rented. We have been thinking of buying a house but they are too expensive as we want it a little closer to the city. I have a fulltime job as an IT professional but my wife does not work. My loan for the three-bedroom apartment is up for review (and the lease is also up) and I wanted to know if it’s a good idea to sell it? I made about $12,000 in rental income on it last year. I have about $280,000 borrowed on it and I am hoping it will sell for about $590,000 to $620,000 based on other sales in the building over the past 15 months. I paid about $390,000 for the apartment. The only reason I thought of selling is because it’s a good market right now and I’m hoping that in a few years there will be a downtrend in housing and I might be able to buy a house cheaper. I might make around the same amount of money in term deposits as I am making in rental income.
A. This is a question that probably requires some personalised advice. I ran it past investor Graeme Fowler, who has written books about real estate investment. He says the right course of action comes down to what your plan is.
‘‘By selling or keeping the threebedroom apartment now, how does that fit into your long-term plan? Predicting that the market may or may not change in the future, or selling because it has gone up in value, to me, are not really sound financial reasons. I presume the loans are on principal and interest so you are slowly paying down debt. If not, I would get both loans onto 20- to 25-year principal and interest loans as soon as possible.
‘‘Also, by structuring the loans correctly, you can’t compare term deposits with rental income, it just doesn’t work that way. Rental income and paying down debt is always going to win long-term. Owning your own home may be of more importance than building long-term wealth, it’s an individual choice, and that’s why you need to know what the end result is, say, 20 years from now.
‘‘Any time you sell off any rental properties, if they are on principal and interest loans, you are losing both your time and money leverage. If it was me, I would keep both properties and rent in the city for now and maybe look at buying something to live in a little later on. However, it’s always a personal preference as to what’s most important for both partners in a relationship.’’
Do you have a consumer or personal finance question you’d like answered? Email susan.edmunds@stuff.co.nz
‘‘Rental income and paying down debt is always going to win long-term.’’