A conversation I’ve had a couple of times recently has been with couples considering selling their house and renting in a more desirable area. The risk that you always run with this type of option is the market moving on you and not being able to get back in when you do wish to purchase again.

A scenario I would recommend considering is getting a simple rental for less than what their current house is worth and make sure the rent covers the mortgage and additional costs.

The advantage of such a strategy is that you retain your footing within the property market while having the flexibility of living in a rental. Also if a house has been sold part of the profit will be used as deposit for the rental property meaning it is no longer available to be spent and potentially ‘frittered away’.

An example of this could look as follows:
Current house sold for $530000 with a $400,000 mortgage. Net proceeds from sale = $505000, (after real estate and legal fees) so left with $105000.
Purchase a rental unit for $330,000 with a $20% deposit ($66k) so borrowing $264,000 – at 7% lending is $355 a week (on current interest rates of 5% it would be $253 a week). So rent of around $400 a week should meet the mortgage + other costs (rates and insurance) so the property is basically self-sustaining.

Purchasing a rental would obviously leave less money in the bank ($39000 instead of $105000). However you have still got a house, a foot in the market and the ability to move in and out of renting houses yourself without suddenly finding yourself priced out of the housing market.

The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans.