Sell a commercial property or keep it?

I have a small commercial ground floor retail/office shopfront on a busy street in Melbourne inner metro

The loan is a tiny $280000 on it, currently rented below market at about $20000p/a and market rent is $35000.

Value I've been told is $500-580k.

If we're assuming rental yield 6-8% the above value is somewhat correct.

We are developers and are generally pretty capital intensive - the property above is not cross collateralised.

Should I just sell and get the profit and equity back about $200k after tax or just keep and get the 10% rental with new tenant? (I would be paying about $76000 tax)

It's hard to use this building as equity as it's regarded as commercial and a real pain for valuations. Council valuation is $400k. Have used this for resi loans before and it's a headache with little equity gain.

or is there another way to get an advantage with a loan on this?

 

If you sold and had capital back could you make a better return?

 

Will you get $35k/yr+gst + outgoings (on a 3-5 year lease) if you leveraged the $200k?

Would you qualify for the same loan if you didn't have the CIP?

'It's a pain for valuations' - so you mean that you have to pay a valuer as it costs more than a couple of hundred dollars?

I regularly have to commission vals which cost over $2k on land worth very little ie <$1000, however if I didn't (thus saving the community $100,000's) I could end up in gaol for not seeking the best outcome even though common sense tells you what it's worth.

 

So essentially you have a cash cow

I'd up the rent a reasonable amount to pay the principal down.

The increase in income and reduction of loan principal should increase your serviceability for other projects

By the time you sell and pay various costs and tax you'd have nearly $200k, not much for anything really

Unless you have a major project on the horizon that you require an injection of funds for, in that case sell

 

Why is it 15k under market rent?
How did that even happen? I see little way you could get the existent tenant to pay a whopping $288 weekly rental increase.
You will likely need to vacate them and then get all the costs that come along with getting a new tenant.

With that said it's an absolute cash cow. I wouldnt ever be selling something like that. What would you do with the 200k that could generate that kind of income?

 

Fix the rent situation, potentially release equity on the property up to ~75% LVR if your numbers stack up.

In terms of selling vs keeping - balance out what happens in both scenarios and which gets your a better ROI - no point selling if long term the steady burn of the CIP works in your favour, OR if you can spin those funds a lot further with developing it may well be worth selling.