Option 1 or 2? Could this be my get out of pain opportunity?

In short, Just taking an offer for Melbourne townhouse sale, after loan repayments I should be left with 250k plus. According to my accountant I won't have to pay the CG of around 50k as I have tax loss credits accumulated while working overseas.

Big question is in regards to a Gladstone unit i'm taking a yearly out of pocket after tax loss of around 7k. Bought 235k plus purchase costs (2013), crazily was duped by a buyers agent. Value now would sit 80-95k.

Two options I'm trying to weight up:
1) Use the proceeds of the Melbourne sale to offset the Gladstone loan & bring it back close to balance, not wise taking the 160+ loss & can still hold onto cash reserves in my account.

2) Sell Gladstone unit this financial year, take the 160k+ loss but would mean the 50k CG from the Melbourne sale could be carried forward for the sale of another property's GC in future. This in effect adds 50k in value to the unit which by the looks of it may be quite some time for the market to improve by this much. Make sense? Then no more stress of this market! The big loss would then also be carried forward to offset future GC.

There is still a ridiculous amounts of repossessions taking place according to the agents I've spoken with. 500k properties selling for under 150k. Rental had dropped to 120p/w but now units in the complex are achieving 150p/w, vacancy rates in the region were over 10% now under 3% so the market is showing signs of stabilizing. Any thoughts from any wise gurus in this forum would be very appreciated.

 

Don’t forget the potential opportunity loss by holding onto a lemon with minimal income. Don’t know your borrowing capacity but that won’t help it. Throw in the stress related to a poor investment which will effect focus.

Me personally I would definitely be cutting it loose, learning from my bad mistake and just using it so offset your future gains from the valuable lesson you’ve learnt.

 

Thanks for your quick reply Albanga! In my mind thats the wise option, painful financial pill to swallow realising that big of a loss especially as I've just moved back to Aus & not working. So at present borrowing capacity is zero. Too add into the mix I'd have to end the lease of the tenant to clean up then likely would sit vacant for I'm guessing at least 3-4 months for a sale. But pretty sure Steve McKnight's approach with a lemon would be to offload too.

 

Banks seem to be quietly repossessing properties. Mortgagee sales seem to be up in the last few weeks. I expect more mortgagee sales (Australia wide data).
It's up to you whether or not you cut your losses. Sometimes it's better to have a little of something, than a whole lot of nothing.
The agents sound like they are being honest. It takes a whole lot of pain for an agent to admit things are looking bad.

 

Thanks @hobartchic just wondering if having a little of something refers to holding the liability or refers to holding a little of the profit after selling both the GC sale & big loss on the unit?
Be great to hear from anyone, even just a comment option 1 or 2

 

Signs show its hit bottom but would expect the market recovery to be years away. Sounds like a lot of people on welfare supporting the cheap rentals. Without offering advice what would your gut instinct be telling you to do, keep funds from sale, bring holding costs down & hold, or use this as a means of carrying fwd GC & getting out? Cheers @Rolf Latham

 

I personally like to hold a little profit but that's something you need to decide.

 

I've been bottom feeding in these markets (I need a new phrase ) and own a few of these cheapies. But now sweating on stagnant prices, dismal rent returns, high expenses and vacancy rates. So come on people start buying up there! A house for $150k and a unit for $100k cheap cheap!!

While I would usually say to hold on, I'm aware my cheapies in nearby Bundy have not gone up a cent in about 3 years

 

In all my readings over the years I’ve never heard from someone who had a positive story to come out of holding a mining lemon. The reality is recovery times are enormous if at all and once you factor in all costs and then what it does to your mental state then to me it’s an easy decision.
The most interesting thing I have read though is that a number of people that got suckered into mining booms and sold actually have turned it around. Some people on these forums have gone on to write books about it, some have copped the loss learnt and got it right the next time.

I’m yet to hear from someone who said “yeah held it for 10 years then I doubled my money”....

 

I agree 100%. It's not worth the worry and stress. We sold out a year ago with a loss of over $400,000. I don't regret selling.

 

If i bought at these prices I could manage the holding game.. kicking myself as i was deciding between this one & outer sydney unit at the time..

 

3-5 years i could bite my tongue and use sale profits to offset the holding costs on this one.. I guess not so wise holding profits for a decade.. cheers Rolf

 

Hi Ems, okay to ask how the bank managed the situation.. sold another property to pay out the loan? I guess must be a relief knowing a year on the market hasn't moved..

 

So rental is $150pw less cost of say $80pw leaves $70pw
On $80k sale price that would be a 4.4pc net yield ?

 

Hey Beano, Current rent is 120 but up for renewal next month & can achieve 150p/w, deciding if I do this or vacate the tenant, clean up with paint & fresh photos, list for month then re-lease if i need to until a sale.

Good question on net yield? Do yourself or anyone on here have a cost holding analysis calculator to have a look?

Current:
Loan 240000
Rent 120p/w
Interest 5.07%
Agent 8.8% (550)
Body Corp 1250
Rates 1450
Insurance 500
Other 1000
Depreciation 5100

Holding cost?

with the sale of my melbourne unit I could put 50k funds into loan & fix rates for lower interest rate:

Loan 180000
Rent 150p/w
Interest 4.41% (fix 2 yrs)
Agent 8.8% (550)
Body Corp 1250
Rates 1450
Insurance 500
Other 1000
Depreciation 5100

Holding cost?

Then weighing up holding cost vs 160k immediate loss.
Really appreciating eveyone's opinions on this, i should have asked here when i was buying & i would never have bought this lemon!

 

Yes a dilemma. Any calcs should also include cost of vacancy, say 4 to 6 weeks rent. Perhaps consider 160k loss as already incurred and how best to move forward from this point.

 

Cheers for the post, & I just realised body corporate is 3320 per year This completely changes numbers from bad to worse!

 

From what I've worked out with the current situation:
Potential Income 7,800
Expenses 19,000
Pre-tax out of pocket 11,050
After tax out of pocket 5,800
Why didn't i wake up to this years ago!