We unpack why 8/10 people should sell their first home rather than turning it into an investment property. While holding property feels like the “safe” option, the reality is it can often create more problems than it solves.
The idea sounds logical - keep your first home, rent it out, and upgrade - but for most Kiwis, this decision leads to poor returns and unnecessary financial pressure.
The Yield Problem
At the core of why 8/10 people should sell their first home is one simple concept: yield.
Yield is calculated as the annual rent divided by the value of the property. In many cases, first homes perform poorly here, often sitting below 4%, and sometimes as low as 2%.
The reason comes down to how the property was originally chosen. A first home is typically bought based on lifestyle – location, backyard, space for a family – not on financial performance.
That creates a mismatch. You’re paying for land and features that don’t generate income, while only renting out a portion of the value. As a result, the numbers simply don’t stack up compared to a purpose-built investment property.
Costs Add Up Fast
Another major reason why 8/10 people should sell their first home is the hidden cost of turning it into a rental.
When you live in a property, you can delay or ignore upgrades. But tenants expect things to be fixed and maintained promptly. This increases maintenance costs significantly.
On top of that, you’ve got:
- Property management fees
- Rates and insurance
- Ongoing repairs
These costs quickly eat into any rental income, reducing your overall return.
The Cashflow Trap
Many accidental landlords underestimate how quickly a property can become cashflow negative.
Once you factor in mortgage payments, management fees, and expenses, it’s common to find yourself topping up the property each week just to keep it running.
If interest rates rise, that pressure only increases – turning what felt like a smart move into a financial burden.
When It Can Work
While the general rule is that 8/10 people should sell their first home, there are exceptions.
In some cases, a first home can work as an investment if:
- It was purchased well below market value
- It has strong yield and cashflow characteristics
- There’s potential to add value (e.g. adding bedrooms)
However, these situations are the minority – not the norm.
The Emotional Factor
One of the biggest drivers behind holding onto a first home is emotional attachment.
People often think:
- “I loved living here”
- “It feels safe to hold property”
- “Property always goes up”
But emotional decisions don’t always align with financial outcomes. Holding onto the wrong asset can limit your ability to build a stronger portfolio over time.
Key Takeaways
- Most first homes are not designed to be strong investment properties
- Low rental yield is one of the biggest issues
- Costs increase significantly once a property becomes a rental
- Many investors end up topping up their property weekly
- Emotional attachment often drives poor financial decisions
- In some cases, it can work – but these are the exception
- The key is buying the right property, not just holding any property
Next Steps
If you’re unsure whether to hold or sell your first home, speak to the Lighthouse Mortgages team to make sure your lending and structure actually support your long-term position.
If you’d like to watch more, check out this other episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
