If worry about your rental is keeping you awake at night, it might be time to sell

The last few words of a letter from a reader were the clincher.

“Should I keep the rental until such a time as I need to sell it, or should I sell it now and give myself some peace of mind?” asked a woman we’ll call Rachel.

“Two years ago,” she writes, “I left the city for the provinces, selling my house in Auckland and buying two houses in Napier — one to live in and one as a rental.”

Rachel is continuing to do her part-time Auckland job remotely, and also does some consulting work for two other companies.

So far, so good.

But the rental property has a substantial mortgage on it. “It is rented for $400 a week and costs me around $9,000 a year in mortgage top-up, rates and repairs,” she says.

That would probably be fine, except that she’s worried about whether the Auckland job — her main source of income — will continue.

“If I sell the rental, I’ll be able to pay off a good amount of any debt I have, save myself the $9,000 a year, and calm the anxiety over keeping the Auckland job,” she says.

In the long run, if Rachel keeps the job, she will probably do well with her rental. Most property investments grow in value over the years, and the owner benefits from growth not only on the money they put in, but also the bank’s money.

But there are two concerns:

  • Rachel will lose her main job.

Chances are, in the current economy, that she will find other work, but it may take some time, and the new job may pay less. In the meantime, she has to keep making payments on two mortgages.

This is the type of situation in which a rental investment can go horribly wrong. If the owner is forced to sell, and the property market happens to be in a downturn, the price they get might be less than the mortgage they have to repay. They end up with no asset and a debt to the bank. Ouch!

  • She’s worrying about what might happen.

This is no small thing. Even if Rachel keeps the Auckland job, she’s been losing sleep. That’s not what life is all about!

In light of all this, it makes sense for Rachel to sell the rental. But that introduces one more issue. “I’m a notoriously bad saver,” she says, “and worry I would fritter away the money from the sale.”

The obvious solution is KiwiSaver.

If she puts the proceeds of the sale into a KiwiSaver fund, she won’t be able to access the money until she turns 65.

And KiwiSaver is much easier to run than a rental property. The only slightly tricky part is making sure you’re in a fund at the right risk level for you, which I discussed in the last column. Rachel can check that by answering the three questions at sorted.org.nz/myfundtype.

Once she’s done that, I suggest she chooses a low-fee fund of her type, using the link to the Smart Investor tool at the end of the questionnaire.

Ask Mary

Have a question or concern about saving or investing for Mary? Email [email protected], subject Money. Letters cannot be answered personally. If your topic is chosen you will receive a copy of Mary’s book, Rich Enough? A Laid-Back Guide for Every Kiwi.

This column is supported by the Financial Markets Authority to encourage women to take an interest in KiwiSaver and investing. Visit fma.govt.nz for more information. Mary’s views do not necessarily reflect those of the FMA.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.