Looking for some advice on this scenario

The property in question is a dual occupancy in Rockhampton (two houses, one block) and has been a good rental for some years now. The issue is that the IO period on my mortgage finished and my payments have risen, and I am at least $1000 per month out of pocket, not including maintenance, vacancies, etc.

Rockhampton is at the very bottom of the market and the amount of investment and infrastructure going into the area, combined with a very tight rental market and historic cycles do indicate the market will rise, but when and by how much is an unknown.

The options I see are:

Do nothing. My personal cashflow takes a hit on a monthly basis doing this. I do get a small monthly income from another investment property (about $200), which will subsidize it a bit but I would have to keep this up until the market rises.

Refinance and keep. The bank valuation for refinance purposes came it at $13k less than the current mortgage balance, therefore I will have tip in about $50k for the refinance to occur. I do have the cash to do this and it would bring it back to cashflow neutral on a P&I basis (Never again will I use an interest only loan) but will tie this cash up until I sell.

Sell as is now. Being a dual occupancy, there is limited demand for this the market and I would be tapping a limited pool of buyers at the bottom of the market. The prospects of selling it for enough to pay everything out are slim, and I will make a capital loss. In my mind, the question becomes how much I knock the price down to offload now.

Renovate and sell. The properties are in better than average condition, but after 10+ years as rentals do require a cosmetic spruce up (nothing structural required) and would have better sale prospects. Obviously, the costs and logistics of the reno need to be considered.

Separate the titles or strata and do an alternative strategy to sell. I have had some thoughts around maybe offering each house on vendor terms, rent to buy or something similar. The downside is the cost and logistics splitting or stata, and the negativity around vendor finance and lease options. I would also have to refinance to make this viable meaning I am in the hole for the refinance, plus the splitting costs, with no guarantee of making this back, and the headaches of these strategies I left behind years ago.

My current thoughts are to take a loss and just sell now, for the following reasons:

· Every other property deal I have done has made money, and this will be the first loss. I can live with that.

· This property is from an era where my investing philosophy and mindset was somewhat different to now and getting rid of them will draw a line in the sand.

· Given the mistake I made not keeping an eye on the expiration of the interest only period, there is a negative mindset piece which is creeping in and is taking focus off what I am currently doing (opportunity cost).

Thoughts/input would be appreciated, especially if there is another option that I am not seeing.

 

Consider the opportunity cost of holding on too.
If you sold how much would this
- improve serviceability on other loans, if you may borrow again
- free up cash which could be invested?

 

If cashflow is important consider a PAYG withholding variation to release some of the refund into your regular pay instead of year end.

If planning to sell I always suggest three calcs

1.What is the taxable capital gain ?
2. What is the equity a sale would release ? eg Sale less selling costs less payout loan less tax.
3. What will your tax return look like after a sale ?

Sometimes people find the impact of selling isnt major in terms of CGT and doesnt help equity much and they have a marginal impact on tax return anyway. Or a major cash outflow if the value is less than cost and the loan payout needs to be funded.

 

Sold - the contract went unconditional yesterday.
In the end, I decided to wear a loss and get rid of the bloody thing.

 

How was the price you got compared to purchase price? In line with the bank Val?

 

Got a bit less than the bank val, but actually more than the second val I got trying to better the first one
In the end, I am glad to see it gone (it settled today) and I can now move on to different investments.

 

Congrats
Selling a non performer is always a huge relief

Have done it many a time