Weighing the Benefits of Keeping Your First Home as a Rental

As borrowers consider upgrading to a new home, many face a critical question: should they retain their first property as a rental? According to Nadine Higgins, a property expert, this decision hinges on various financial factors, including current lending regulations and property management considerations.

Reserve Bank regulations require most borrowers to have a minimum of 30% equity in their existing property when applying for a new mortgage. This requirement can complicate the decision-making process for homeowners thinking about keeping their initial residence as a rental. While interest on loans for investment properties can be tax-deductible, interest on loans for personal residences typically is not, which is an important factor to consider.

In addition to understanding the financial implications, homeowners must also evaluate the ongoing responsibilities of managing a rental property. Healthy Homes standards dictate specific requirements for rental properties, aimed at ensuring safe and healthy living conditions. These standards may necessitate additional investments to meet compliance, which can introduce unforeseen financial risks.

Higgins notes that many of her clients in recent years have come from areas outside of Auckland, where mortgage debt levels tend to be more manageable. This geographical difference has led to intriguing discussions about the benefits of retaining a first home when moving to a second or “forever” residence. For clients based in Auckland, however, the high prices of housing and associated debt levels often make the prospect of maintaining a rental property less appealing.

When evaluating whether to keep a first home, potential landlords must weigh several factors. The income generated from rental properties can provide financial stability and contribute to mortgage payments on the new home. Yet, the responsibilities of being a landlord can also be demanding, requiring time and resources that some homeowners may not be prepared to dedicate.

As these homeowners navigate their options, it is essential to consider both the potential rewards and risks. Keeping the first property can be a viable strategy for some, but it may not make sense for everyone. Engaging a financial advisor or property expert can provide clarity and help tailor decisions to individual circumstances.

Ultimately, the choice to retain a first home as a rental property is not one-size-fits-all. Homeowners must assess their financial situation, the current housing market, and personal readiness for the responsibilities of property management before making a decision.