What to Do When Your Rental Property Isn’t Covering Costs
Step 1: Get Clear on the Numbers
The first thing to do is move from a rough sense of “it is costing me” to an exact understanding of how much.
Calculate your monthly shortfall by listing every cost:
These figures are illustrative, but they reflect a common reality for Auckland landlords in 2026. A shortfall of $1,500 or more per month is not unusual for properties purchased in the last five to ten years at higher price points.
Once you know the exact number, you can start making informed decisions.
Monthly Cost Breakdown Example
| Expense | Monthly Cost (Example) | Notes |
|---|---|---|
| Mortgage repayment (P&I) | $3,407 | $600k at 5.50%, 30-year term |
| Council rates | $250 | Varies by property and council |
| Insurance | $200 | Building + landlord protection |
| Property management | $280 | ~8% of rent at $650/week |
| Maintenance provision | $200 | Average across the year |
| Body corporate (if applicable) | $400 | Apartments and units |
| Total costs | $4,337 – $4,737 | |
| Rental income | $2,817 | $650/week |
| Monthly shortfall | -$1,520 to -$1,920 |
Step 2: Identify What You Can Change
Not every cost is fixed. Break your expenses into two categories:
Costs you can influence
- Mortgage repayment: review the mortgage structure (interest-only, extend term, refinance)
- Rental income: is it at market rate? A rent review may be overdue
- Vacancy: reduce empty periods through better marketing and tenant retention
- Maintenance: shift from reactive to preventative to reduce costs
- Tax deductions: ensure you are claiming everything you are entitled to
Costs you cannot change (much)
- Council rates
- Insurance (you can shop around, but the market has hardened)
- Body corporate levies
Step 3: Take Action on the Lending Side
Your mortgage is almost certainly the largest expense. There are three main levers:
- Switch to interest-only: on a $600,000 loan at 5.50%, this saves approximately $657 per month compared to P&I over 30 years. It is the fastest way to reduce your shortfall, though it means no equity is being built during the interest-only period.
- Refinance to a lower rate: with rates now between 4.49% and 5.79% depending on the term, landlords currently paying above 6% can save significantly by refixing or refinancing.
- Extend the loan term: moving from 25 years to 30 years reduces repayments by approximately $278 per month on a $600,000 loan at 5.50%.
These are not mutually exclusive. Many landlords combine strategies, for example, refinancing to a lower rate and switching to interest-only at the same time.
Step 4: Improve the Property's Earning Potential
On the income side, ask:
- Is the rent at market rate? If not, get a professional rental appraisal.
- Is the property attracting tenants quickly? If the property has been empty for more than two weeks, your marketing or pricing may need to be adjusted.
- Are there value-add improvements that would increase rent? Small improvements (heat pump, dishwasher, fresh paint) can justify a meaningful rent increase.
- Is the current tenant worth keeping? Good tenants who pay on time and look after the property are worth retaining, even if it means a slightly smaller rent increase.
360 Property Management’s Auckland team can help landlords assess their current situation and develop a practical strategy to improve rental performance.
Step 5: Reassess the Investment as a Whole
If you have exhausted the practical options and the property is still costing more than you can comfortably sustain, it is time to step back and ask the bigger question: does this property still serve your goals?
Consider:
- Equity position: What is the property worth today, and what do you still owe? If equity is strong, you have options. If it is marginal, selling may not solve the problem after transaction costs.
- Growth outlook: Is the property in an area with strong growth potential, or has growth stalled? A property in a high-demand suburb may justify short-term losses.
- Personal financial capacity: Can you comfortably cover the shortfall each month, or is it putting pressure on your household finances? If it is causing genuine financial stress, that is a signal to act.
- Time horizon: Conditions are improving. The OCR has dropped, interest deductibility is fully restored, and fixed rates are trending down. If you can hold for another 12-18 months, the picture may look quite different.
When Selling Might Be the Right Move
Selling is not a failure. It is a valid financial decision if:
- The ongoing shortfall is unsustainable and is causing financial stress
- The property has poor long-term growth prospects
- You have enough equity to sell, cover costs, and come out ahead
- Your capital would perform better invested elsewhere
If you are considering selling, talk to a property adviser first. Sometimes the numbers look different once you factor in selling costs (agent fees, legal fees, potential bright-line tax), which can significantly reduce your net proceeds.
When Holding Makes More Sense
For many Auckland landlords, holding through the current cycle is the better decision. This is especially true if:
- You can manage the shortfall without genuine hardship
- The property is in a location with strong demand and growth potential
- You have made or can make structural changes (lending, rent, management) to reduce the gap
- You are building equity through P&I repayments (even at a short-term cash flow cost)
- Interest rates are expected to continue falling over the next 12-24 months
Expert Property Management in Auckland City
If you own a rental property in Auckland City and want to reduce vacancy, protect income, and improve long-term returns, the right management strategy makes all the difference.
Talk to 360 Property Management about a smarter approach to managing vacancy – from the start.
For general inquiries or more information, please email 360pm.nz@raywhite.com. If you are an existing client needing assistance, please submit a request through our Client Portal or call (09) 636 7355.
Frequently Asked Questions
This depends entirely on your personal financial situation. Some landlords can sustain a $500/month shortfall indefinitely. Others find $200/month unmanageable. The key is to know your number and have a plan to improve it over a defined timeframe.
Auckland rents have been increasing, but they rarely move fast enough to close a large shortfall on their own. Rents are more likely to fill the gap if you are also taking action on the lending and cost side.
A mortgage broker can compare options across multiple lenders and often negotiates better terms than going directly to your bank. However, it is worth speaking to your current bank first to understand what they can offer, as switching lenders involves costs.
Next Steps
If your property is not covering its costs, the worst thing to do is nothing. The second worst is to panic.
Get clear on your numbers. Identify what you can change. Take action on the biggest levers first. And if you need help optimising the property side of the equation, talk to a professional property manager who understands the Auckland market.
360 Property Management helps Auckland landlords and investors optimise rental performance, reduce vacancy, and protect their investment.
Request a free rental appraisal to find out if your property is performing at its best, or speak with our team about how we can help.
